What is a license and permit bond?
License and permit bonds (also called commercial bonds) protect consumers and governments by holding businesses accountable to federal, state, and local laws and regulations. Companies in various industries must obtain license and permit bonds before they can legally conduct business with customers.
If you want to run a business, you may be required to obtain a specific bond before a municipality or other public body issues you a permit or license. For example, many states require roofing contractors to get bonded before they can get a license.
Like other surety bonds, a license and permit bond involves three parties:
A Business (the principal)
Government Entity (the obligee)
An Insurer (the surety company)
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How do license and permit bonds work?
These bonds offer protection for your clients, ensuring you’ll operate your business according to the laws regulating your profession. If you don’t, a client can make a claim on your bond, and you may lose your license. If this happens, the surety company will reimburse your client up to the bond amount. Then you’ll be held responsible for paying the surety back the same amount.
It’s illegal to conduct business without a required bond. If you do, you could face financial charges and possibly even jail time.
What do license bonds and permit bonds cover?
License and permit bonds protect your clients financially if your business fails to adhere to standards and regulations in your industry and state.
Your bond will provide coverage if you do not:
- Abide by local, state, or federal laws
- Follow mandatory safety regulations
- Reach professional standards
- Adhere to local building codes
Your bond will not provide coverage for:
- Damaging a client’s property
- Work-related injuries or illnesses and related lawsuits
- Employee theft (you’ll need a fidelity bond for that)
- Professional negligence
ZipBonds provides thousands of bond options, including license and permit bonds.
Types of License & Permit Commercial Bonds
Here are 9 examples of common license and permit bonds and how they work:
Most states require auto dealers to submit this bond before receiving a motor vehicle dealer license. This bond helps protect customers from misrepresentation or fraud in business transactions.
Before receiving a contractor license, construction professionals must obtain a contractor license bond. The bond ensures that the professional works in accordance with set laws and regulations.
Right of Way Bond
A right of way (ROW) bond protects the municipal entity from damages caused from partially finished work on a public right of way. If you’re a contractor looking to perform work in a public right of way (any easement owned or controlled by the government), you’ll need this bond.
If you want to obtain a liquor license to operate a brewery, winery, restaurant, or liquor store, you’ll need an alcohol bond. This bond guarantees that you’ll pay all of your taxes and abide by all laws, regulations, and statutes that apply.
Hunting & Fishing License Bond
Businesses that wish to sell hunting and fishing licenses must post this type of bond first. It ensures sellers abide by industry laws, protecting buyers from dishonesty or unlawful activity.
Depending on where you live, you may be required to post a cannabis (or marijuana) bond before engaging in related business activities. Bonds may vary from state to state, depending on laws and levels of marijuana legalization.
If you want to open a driving school, your state may require you to obtain a bond first – before you’re allowed to operate legally. The bond helps protect the public, including students, against fraud, misrepresentation, and other law violations.
The Department of Agriculture requires you to obtain and maintain this bond to buy and resell agricultural products (like honey, veggies, and livestock) legally. The bond protects producers by making sure dealers follow food quality standards and other protocols.
How much does a license and permit bond cost?
You can get license bonds and permit bonds for as low as 1% of the total bond amount. For example, if your industry requires a $30,000 bond, you might pay as little as $300. Your credit score may play a significant role in the percentage you pay. If your score is poor, you could pay up to 10% of the bond amount.
Frequently Asked Questions
As an aspiring business owner, you need to set up your new business for success. To start, choose a legal structure, obtain your employer identification number (EIN), and check your local and state regulations to determine if you need a license. Licensure may depend on your ability to post a bond. If your state requires you to get bonded, find an experienced surety provider.
No. A surety company can issue you a bond after they’ve evaluated your work and credit history and risk level. A bond protects the public if you or your business fails to meet specific conditions. You can obtain your business license once you’ve met all local, state, and federal requirements.
Getting licensed and bonded can open more opportunities for your business and give you a competitive edge. You could potentially take on larger jobs, work with more prestigious clients, or win government projects. Your license and bond will also show other businesses that you’re serious about your work, reliable, and trustworthy, giving them more peace of mind.
Get a License & Permit Bond in Your State
Find your license and permit bond and get pre-approved in a zip! We make the process as easy, quick, and painless as possible. Contact us directly if you have any questions. We’re available and more than happy to help.