If you're relatively new to working as an independent contractor, one thing you'll want to become familiar with is the process of taking out surety bonds before beginning projects with new clients. By having a better understanding of what surety bonds are and how they work, you'll be able to better protect yourself and your business.
The Purpose of a Surety Bond
Essentially, a surety bond is put into place in an effort to protect all parties in a transaction. In the case of a contractor hired to complete a project at a client's house, the bond acts as an agreement stating that the project will be completed as outline in the contract. If it is not completed, the bond surety will kick in to pay for any damages or costs related to finishing the project.
A Client Can Demand a Bond
As a contractor, it's a good business practice to offer surety bonds for any project you take on; this can give you and your clients greater peace of mind, thus making them more likely to hire you than if you were not bonded. Even if you propose a project to a client without being bonded, keep in mind that a client can demand a bond as a contingency of the contract.
The Cost Depends on Risk
Contractors are generally the ones responsible for paying 100% of the cost of a surety bond, and costs can range greatly depending on the risk. Some factors that will go into determining the cost of your bond will include your credit rating, the type of bond you're looking for, and your risk preferences. Generally, you can expect to pay a few percent of the total cost of your bond principal.
They Can Be Extended or Renewed
You should also be aware that, if needed, most surety bonds can be extended or renewed. This is convenient if you return to work on a new project with the same client down the road, or if a project runs past the original deadline. Simply contact your bonding agent to have the surety bond extended as needed.
Overall, surety bonds are a good idea for clients and contractors alike, providing extra protection and peace of mind on both sides of the transaction. The key is to find a reputable surety bond provider so you can get the coverage you need at a reasonable price as well. To learn more about surety bonds, visit resources like https://www.nfp.com/.