Running a Canadian business can be fun but there is a good chance that you’re going to run into major problems along the way. Your workers may become disgruntled and you’ll want to work quickly to solve this problem. Simultaneously, you have to go above and beyond to ensure that you’re doing everything you can to keep your customers satisfied. If your customers get angry, there is a good chance that rings are going to spiral out of control. Your customers will complain and they might file a lawsuit against your company. As a Canadian business owner, you need to avoid these problems. Simultaneously, you may be required to obtain a surety bond.
Some Canadians are not willing to work with companies that will not acquire a surety bond. If you’re going to be working with a picky customer or a governmental agency, you’ll likely need to acquire this type of bond. Failing to do so could result in your company losing the contract. So, what is a surety bond? What is the purpose of surety bonds? Within this guide, you’re going to learn about the basics of surety bonds and their purpose.
The Basics
First and foremost, you should take the time to learn a little more about the basics of surety bonds. There is a good chance that you’ve heard of a bond at some point. Most people think of bonds as jail bonds. When someone obtains a bond, they’ll pay a specific amount of money to get released from jail. Simultaneously, they’re promising that they’ll show up to court. If the individual does not, their bond will be revoked and they’ll get into big trouble.
Well, surety bonds are similar but they’re utilized by Canadian businesses. The surety bond is used to protect the Canadian government and Canadians at large. These individuals are protected from losses. You will be required to obtain a surety bond when acquiring certain contracts. Suffice to say, the future of your business depends on it. When it comes to Canadian surety bonds, you should know that there are three factors involved. These factors will be explored in greater depth below.
Frequently asked questions about surety bonds
- What does it mean to post a surety bond?
- Differences & similarities of cash vs surety bonds
- Reasons why you may need a surety bond
- How much do surety bonds cost?
- How to get a surety bond
- Do surety bonds expire?
- How does a surety claim work?
The Three Parties
Again, there are going to be three parties involved in a surety bond. If you’re not familiar with these parties, you need to change that immediately. Otherwise, you will never be able to understand the basic function and benefits of this type of bond. The surety bond will involve a principal, surety, and obligee. If you’re running a business and you’re required to obtain a surety bond, you’re going to be classified as the principal. The principal is the party that must obtain the bond. The obligee will be your client. This is the party that is selling you to obtain the bond. If you refuse to obtain a Canadian surety bond, the client will refuse to work with you. With that being said, you have to make sure that you obtain the bond from a proper entity. Next, you have the surety. The surety is the company that is providing you with the bond. The insurance company will play a vital role in the bigger scheme of things.
Therefore, it is pertinent to pay close attention to the insurance company that you choose. They will make sure that you’re protected and that can help you. Simultaneously, the surety is going to go above and beyond to make sure that you fulfill your obligation to the consumer. The surety is there to help both parties. While you might not believe it, the surety bond is beneficial for the Canadian company too. Therefore, you should not hesitate to acquire a surety bond. Doing so will ensure that you’re able to obtain the contract and generate a healthy revenue stream for your business.
Job Security
One thing to note is that surety bonds protect the worker as well. Studies have shown that surety bonds covering public works projects protect jobs. It is estimated that every $1 million paid for surety bonds will protect roughly $1.5 million in wages. And, you should understand that this accounts for more than 25 full-time jobs. Suffice to say, surety bonds are beneficial for everyone involved. If you’re worried about the economy and you want to support it, obtaining a surety bond when asked is highly recommended. This will provide your company with numerous benefits and it’ll increase the likelihood that you’ll be able to acquire the contract.
How They Work
Now, you need to find out how surety bonds work. You’ve learned about the basics of the surety bond. Now, you can gain a better understanding of the fundamentals. How do they work? Well, you need to realize that a surety bond is considered a type of insurance. Without it, your company may not be able to acquire the job in question. If you do not have the surety bond, the client will demand it or begin looking for a different service provider. Therefore, you need to obtain the bond immediately. Once you’ve acquired a surety bond, you’re going to be required to meet certain requirements. You’ll be required to get the job done during the time period set forth.
Simultaneously, you have to pay suppliers and vendors. Failing to fulfill your obligations will result in big problems because the client will have the option of filing a claim against your bond. Remember that your bond is considered a type of credit. Claims can be made by the obligee and the public. If this happens, the principal will be required to repay the surety. This means that you’re going to be required to pay the surety. You face numerous risks as a surety bond holder. Nevertheless, you may not be able to acquire the job without it. Therefore, you need to obtain this bond. The future of your Canadian business depends on it.
What Will Be Covered?
Ultimately, you need to realize that surety bonds will not cover everything. Nevertheless, you will be required to obey the terms set forth in the bond. If you fail to live up to your expectations, a claim will be filed against your bond and you’re going to find yourself in trouble. Remember that having a claim filed against your company can result in major repercussions and additional costs. Once you’ve been hit with a surety bond claim, you’re going to be required to pay a lot of money. You’re not going to have assistance and you will have to pay ever expense associated with the claim. In terms of legal costs, your company will have to handle these expenses. The surety is giving its word that your company will be able to cover the costs if a claim arises.
Ultimately, there is always a risk that the surety is going to be wrong. And, your company might not be able to afford these costs. If that happens, the case will likely enter the courtroom. Then, you’ll be hit with a court settlement and additional costs. This can increase the fees that you’re going to be required to pay and it could lead to an untimely bankruptcy. These are risks that you cannot afford to take. Once you’ve acquired a surety bond, you have to do everything humanly possible to ensure that you’re obeying the terms you’re obliged to. Remember that the bond is going to be written with your company being unable to fulfill its duty in mind. Therefore, the costs can be immense. And, the surety company is going to consider the fact that your company will have to repay a claim at some point. Now that you’ve learned more about surety bonds, there is a good chance that you’re eager to learn more about surety companies. What is a surety company?
What Is A Surety Company?
A surety company plays a vital role in the process. Before you can acquire a surety bond, you will be required to work with a surety company. Well, you should know that this is nothing more than an insurance company. After all, the surety is a type of insurance. The surety company will give you the surety bond and you will give them your word. Simultaneously, you will find yourself paying a surety premium monthly. While it might seem like a hassle, you likely will not be able to acquire certain jobs without a surety bond.
Therefore, you need to make sure that you choose a good surety company. Do your research and do not settle for less. Make sure that you spend some time researching the surety companies in Canada so you can ensure that you’re going to be treated right and charged reasonably.
What Surety Bonds Will You Need?
Ultimately, you should know that there are numerous types of surety bonds. And, you have to understand that every Canadian business is unique. Therefore, you may require specific surety bonds that might not be required by other companies. With that being said, you should spend some time familiarizing yourself with the different types of surety bonds. In all likelihood, you’ll find yourself dealing with court bonds, contractor bonds, and license bonds most frequently. These are the most common surety bonds and you’ll likely need to acquire at least one of them.
License Or Permit Bond
Now, you should learn a little more about the license or permit bond. Numerous professionals will be required to acquire this type of surety bond. If you do not, your company will not be able to operate legally in Canada. Just remember that not all companies need to obtain this type of bond. There are certain regulations put forth to determine whether or not your company will need a license or permit bond. For instance, freight brokers and automobile dealers will need a license bond. It is pertinent to analyze Canadian laws to determine if your company needs to obtain a surety bond. If you do, you should acquire the bond before serving the public. Otherwise, your company may be hit with a hefty fine for breaking the laws.
Construction Bonds
Construction surety bonds are required for specific projects. Whether or not you will need this bond will depend on the project in question. In general, you will need to obtain a construction surety bond if your company is going to be taking on a public project. If you obtain a contract from a federal, provincial, or territorial government, there is a good chance that you’ll need to obtain a construction bond. Speak with the individual in charge of the project to determine what the requires are.
The Surety bonds which are used in construction are known as Contract Surety bonds. Please find them listed below:
- Bid bond
- Performance bond
- Labour and materials bond
- Payment bond
- Site improvement bond
- Surety’s consent to agreement
- Subdivision bond
Court Bonds
Finally, you have the court bond. This bond is not a requirement in all situations. However, it may be essential for certain instances. For instance, you may need a judicial or probate bond. It is pertinent to obtain the bonds that your company needs. Unfortunately, it can be tough to know what bonds are going to help your company. With that being said, you should speak with a professional. They’ll provide you with assistance so you can get covered right away.
Acquiring A Surety Bond
Once you’ve determined that your company needs a surety bond, you’ll need to take steps to acquire one. Otherwise, your company will not be able to obtain the contract in question. If you’re awarded the contract and you do not have the bond, you’ll need to get it immediately or risk losing the job. Simultaneously, you have to remember that the requirements are going to vary significantly from one location to another. Your province or territory may have unique regulations. With this in mind, you need to take steps to find out what you need.
There are numerous ways to proceed. First, you should get in touch with the licensing authority in your area. What do they say? Do you need a specific type of bond? What is the amount? The licensing authority will be able to provide you with this information. While you’re at it, you’ll want to consider using a bond analysis tool. This is a good way to determine what bond you need and how much you need. It is pertinent to obtain both answers before moving forward. Finally, you should know that we’re here to help. We have been in the game for many years and we have developed tight relationships with Canada’s best surety bond companies. By working with us, you’ll be able to get in touch with a good surety bond company in your area. Don’t take the risk of choosing a surety provider on your own or you may regret your decision in the future.
How You’ll Benefit From Surety Bonds
Many Canadian business owners believe that surety bonds are another expensive. They’re not aware of the fact that surety bonds provide benefits to the company in question. Ultimately, there are numerous benefits acquired from owning a surety bond. First, you have to remember that the surety is giving your word to the company you’re working with. With a surety, the company has to take you at face value. This risky for them and they may not be willing to pull the trigger. Once you’ve acquired the surety bond, they’ll know that they’re going to be protected. If you do something wrong or fail to fulfill your duty, they’ll be able to seek compensation thanks to the surety bond.
Therefore, the best way to give your client a guarantee is by acquiring a surety bond. This will help you put the client’s mind at ease and ensure you’re able to seal the deal. Without the surety bond, you may struggle to get the client to sign on the bottom line. Therefore, the surety bond is a type of credit. Another thing to note is that the surety bond is going to be less expensive than alternatives methods. You may be able to post cash but this is not a good idea. Posting cash can be very risky and more expensive. After all, you’ll have to make a lump sum payment immediately. That money will be held to ensure that your client doesn’t make any claims.
Obtaining the bond is a cheaper solution. If you want to put the client’s mind at ease without breaking your bank, you should acquire the surety bond. This is the most cost-effective way to give your word to the client.
Why The Surety Bond Is Best
Again, you should understand that you can solve this problem using numerous methods. You could give money to a custodian. That money will be held until the client is positive that you’ve fulfilled your obligations. However, the surety bond is the best solution to the problem. It offers far more benefits and you’ll end up paying less. The most notable benefits provided by the surety bond will be explored in greater depth below.
The Best Source Of Collateral
Ultimately, you should know that the surety bond is going to provide you with 100% collateral. You need to avoid putting your money at risk. If you put your money at risk, you could lose it all. This is a risk that many Canadian companies cannot afford to take. Allowing the surety to make the guarantee on behalf of your company is recommended. This ensures that you do not have to risk a lump sum of money.
Much Cheaper
Another thing to note is that the other alternatives are much more expensive. If you do not want to pay more, you should stick with surety bonds. Using the alternative methods means that you will be able to avoid the bond premium. However, this will come with many negatives. For instance, you could lose the money at the end of the day. Can you afford to lose those investment earnings? If you post cash instead of a surety bond, that money could disappear if your company is unable to fulfill its duties. Paying with cash will prove to be a riskier and more substantial financial burden than using a surety bond. With that being said, Canadian businesses should stick with a surety bond. This is the best way to make your guarantee without risking capital.
Saving Capital
If you’re going to be putting cash up as a guarantee, you’re going to be risking capital. This is a serious risk and it is something you cannot take lightly. When you post your assets as the surety, you’re going to be decreasing your company’s liquidity and this is something you have to be very cautious about. Think about it. If you make a mistake and the client files a claim, you’re going to lose the money you’ve posted. You cannot tolerate this type of risk and this is why you’ll want to take advantage of the surety bond. If you lose capital, you’ll likely have a tougher time getting financing and you may not be able to cover mundane expenses. And, you have to worry about your company defaulting on its bills. If you want to avoid going bankrupt, you should avoid putting money up as collateral. You can avoid these risks by taking advantage of the surety bond. While you’ll pay a monthly premium, you’ll be able to protect your company for the long haul.
Dealing With False Claims
You can rely on many clients. However, there are some that cannot be trusted. With that being said, your company needs some reassurance. You need to make sure that you’re going to be protected if your client files a false claim. Surprisingly, this happens frequently and it is a risk you cannot take. You can protect your Canadian business by obtaining a surety bond. This is the best way to avoid those risks and ensure that your company is protected from false claims. When you work with a surety company, you can sleep soundly knowing that this company is going to carry out an investigation when a claim is made against the bond. If you’re paying with cash, you will not have this type of protection. You’ll lose your company and there is nothing you can do about it.
With that being said, you should stick with the surety bond. Ultimately, there are numerous was to meet the requirements of the obligee. While you could do so without posting a surety bond, doing so will prove to be very dangerous. The safest way to move forward is by using the surety bond. When you work with a surety company, you can sleep soundly knowing that the surety company will protect you from false claims. Simultaneously, you should know that the surety company will help you cover the costs. You’ll be able to pay a smaller amount and still cover the requirements. This is a far better option than utilizing your company’s cash.
Protecting Your Personal And Corporate Assets
It is important to remember that a bond is a legal document. And, you should know that it is going to be signed by the surety and you. The surety will be backed by your company’s assets. You have to go above and beyond to protect your company’s assets. One of the best ways to do that is by avoiding bond claims. If you allow bond claims to be filed against your company, there is a good chance that one of them is going to succeed and you’ll lose big time. Therefore, you need to make sure that the requirements set forth by the obligee are fulfilled every time.
You need to fully understand the bond requirements before signing on the dotted line. Make sure that you’re aware of the things that you’re required to do. What are you required to do under the bond agreement? What are you not required to do? Unfortunately, you should understand that bonds are not straightforward. There is always a risk that the bond language will be confusing. You likely do not know much about the laws surrounding surety bonds. Therefore, you need to seek out professional assistance. Make sure that you’re aware of the requirements and repercussions. This is one of the main benefits associated with working with a surety company. They’ll provide you with more information regarding bond claims. If they’re not willing to provide you with this information, there is a risk that they’re not going to be a reliable claims advocate. Therefore, you may want to look for an alternative company. The surety you choose should be willing to provide you the information you need. In return, this will help ensure that you’re able to avoid being hit with bond claims in the future.
What Will Be Guaranteed By Surety Bonds?
Ultimately, surety bonds are very versatile. They can be utilized for many purposes and the guarantees offered may differ. With that being said, you should know that the guarantees provided will depend on the bond in question and the requirements of the obligee. The bond’s guarantees will depend on the language of the bond and the aforementioned information. If you’re not aware of these guarantees, you need to get educated as soon as possible. After all, it is your company’s duty to follow these guarantees. Unfortunately, there are thousands of surety bond structures available to Canadian companies. Therefore, you will likely run into trouble trying to find out what your bond requires from you.
It is important to understand that the bond requirements will likely change from one territory or province to another. Simultaneously, you’ll want to spend some time analyzing the various bond categories. This is the best way to learn as much as you can about your bond requirements. If you’re working in a specific industry, you may need to obtain a surety bond before you can acquire a license. Auto dealer bonds are required for auto dealers who wish to begin selling cars in Canada. Freight broker bonds and contractor license bonds fit into this category as well. It is important to understand the requirements of the license bond so you can avoid having your bond revoked in the future.
Bonds For Public Projects
You may not need a license bond. However, you should not begin serving the Canadian public until you’re positive. If you do not need this type of bond, it is pertinent to acquire it as soon as possible. If your company is going to be working on public projects, you will need to learn about three types of bonds. There are three bonds associated with these projects and you’ll need to obtain all three. Otherwise, you will not be awarded the project in question. The first is the bid bond. This is the bond that you’ll be required to obtain before making your bid. Then, you’ll need a performance bond and a labour and material payment bond. In all likelihood, all three bonds will be required before you can begin working on public projects. Finally, you should know that there are many other types of bonds. Some companies will need to deal with estate bonds, court bonds, guardian bonds, and other types of bonds. Again, your company may not. Therefore, you should take the time to work with a Canadian bond expert. This is the best way to ensure that you’ll be aware of the bonds you need and the requirements of them.
What You Need
Before you jump ahead, you need to find out what is required by your company. While you could spend weeks researching Canadian laws and bonds, this would be too time-consuming. Therefore, it is best to work with a bond professional. Some Canadian bond experts have been in the industry for many years and they understand bonds better than anyone else. If you want to put your concerns to bed, you should consider working with one of these individuals. They’ll provide you with the information you need and help you ensure that your company is covered by the appropriate bonds. Again, you have to understand the operating without the right bonds can lead to major problems. Therefore, you should not begin serving the public until your company is covered. You can take a step in the right direction by contacting our company directly. We’ll get you in touch with someone who can help.
