Top 3 Industries That Require Surety Bonds

    Depending on the industry your business operates in, you might have to deal with various rules and regulations. In order to get licensed or win public tenders for some industries, you need to comply with certain requirements, such as surety bonds. 

    In this article, we will talk about what surety bonds are and why they are so important and beneficial for businesses. We will also present to you the three biggest industries in which a surety bond is a requirement for any business. You will learn about the various types of surety bonds that you need to get if you operate in those major industries.

    What Are Surety Bonds?

    Surety bonds are legally binding financial guarantees that aim to protect your customers, subcontractors, suppliers, and state regulators. They ensure that you will fulfill all per-contract obligations, government requirements, and industry standards for projects you undertake. 

    In these three-party contracts, your business acts as the principal, while the party that receives the guarantee is called the obligee. The third party is a neutral guarantor known as a surety company — which agrees to reimburse the obligee if the principal violates the terms specified in the bond agreement.

    While surety bonds have plenty in common with insurance, be careful not to confuse the two concepts. Surety bonds are designed specifically for contractual obligations between your company and a client. Insurance, on the other hand, covers third-party claims of damage or injuries. Also, keep in mind that when it comes to surety bonds, the principal agrees to pay the surety the full amount in case the bond is used. 

    Which Are the Biggest Industries that Require a Surety Bond?

    Surety bonds come with a lot of benefits for your business, due to the financial protection they provide for your customers. While it is always a good idea to get your business bonded, it is also a requirement for some of the biggest global industries. Acquiring a surety bond is often part of the application process for state licensure in some industries. Usually, if the industry involves complex laws and large money transactions, a surety bond is mandatory for all participating businesses.

    Keep in mind that surety bonds are usually required at the state level. So, you need to make sure you check all applicable regulations for the state your business operates in. Let’s take a look at the biggest industries that utilize surety bonds and the types of bonds they operate with.

    1. Freight and Transportation

    Freight and transportation is a giant industry that requires a wide variety of surety bonds. Depending on the type of business you are executing, you might need a freight broker bond, overweight permit bond, and others. Some of the most common freight and transportation surety bonds you might end up needing include:

    • Freight Broker Bond — guarantees that a freight broker will abide by all applicable laws and deliver results as per its contractual obligations
    • Overweight and Oversize Permit Bond — ensure that carriers who move products over a certain size or weight will comply with all regulations, pay for any damages caused, and take care of all needed taxes for road usage
    • IFTA Bond — this bond guarantees state fuel tax payments as per the International Fuel Tax Agreement by ensuring that the carrier will comply with all state laws and pay all applicable taxes and fees.

    2. Construction

    Another major industry in which surety bonds are required is construction. There is a variety of bonds that cover both the construction companies themselves and their work on a project-by-project basis. 

    Let’s explore some of the surety bonds you should obtain if you are in the construction business:

    • Bid Bond — guarantees that the bid you have placed for an RFP will be honored
    • Performance Bond — ensures that all contractual obligations will be fulfilled and that the quality of the work will be up to industry standards
    • Payment Bond — guarantees that any subcontractors, suppliers, and temp workers involved in the project will be compensated properly

    3. Auto Dealerships and DMVs

    The third biggest industry that makes use of surety bonds is auto dealerships and DMVs. If you are a motor vehicle dealer, there are many surety bonds that you need to acquire in order for your customers and brand to be protected. The same goes for boat and yacht dealerships, which also have access to many bonds applicable for their business. 

    Below are some of the most common surety bonds for auto dealerships and DMVs:

    • Auto Bond — This surety bond guarantees that your auto dealership will follow the law and all industry regulations. It is designed to protect your customers from fraudulent behavior, like lying about a vehicle’s condition or selling stolen vehicles. Usually, you need to obtain an auto bond before you receive an auto dealer license from your state government.
    • Yacht Broker Bond — This bond has a similar function to the auto bond, but it covers yachts. It ensures that you will operate your yacht dealership in accordance with the law and industry standards.
    • Motor Vehicle Registration Bond — You need to get this bond if you are running a business that partners with the DMV. State DMVs often hire private companies to perform services like vehicle registrations and title transfers. However, they need to obtain a motor vehicle registration bond first.

    To conclude

    As a business owner, it is important that you are aware of all industry requirements — from safety regulations to tax laws. Surety bonds are required for many of the biggest industries out there, including the transportation, construction, and auto dealership industry. Therefore, if your business operates in one of these major industries, it will not be able to function properly and grow without acquiring surety bonds.


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