When starting a new business venture, it’s natural to worry about potential risks and setbacks. Unfortunately, these concerns are often exactly what keeps many entrepreneurs from pursuing their ideas in the first place. This isn’t an uncommon scenario; after all, launching a new business is risky business. However, by purchasing the right types of insurance policies and re-insuring your risk with surety bonds, you can minimize potential pitfalls and continue growing your firm without fear of financial ruin. That being said, there are many different types of policies that can be useful for a small business owner. Whether you’re just starting or expanding into new markets, this detailed guide will introduce you to seven different ways that a surety bond can help your biz grow.
1. Provide Protection for Employee Dishonesty
This type of coverage is often included as fidelity and fiduciary bond, which means it provides coverage for employees and business owners. The bonds are designed to cover losses resulting from fraud committed against your company by individuals who have access to cash or assets, such as employees, agents, and contractors. In the event of dishonesty, this type of bond ensures that your business is compensated for any losses. Unfortunately, fraud is one of the most common causes of business loss. According to a survey conducted by the Association of Certified Fraud Examiners (ACFE), the average company loses 5% of its annual revenue to employee fraud, totaling $600 billion per year across the U.S. These losses can be devastating for a small business that doesn’t have the cash flow to easily absorb such a loss without taking drastic measures, such as closing its doors or selling off important assets.
2. Protect Against Consumer Fraud
In this case, the type of insurance you purchase will be referred to as an “endorsement.” These types of endorsements can be added to an existing policy to help protect your business from fraud during sales. Fraudulent sales scams are pretty common in the United States, with nearly 10 million people falling victim to a scam each year. These scams can be perpetrated against either businesses or consumers and include things such as fraudulent sales, non-delivery, false advertising, and identity theft. By purchasing an endorsement that provides coverage for fraudulent sales, you can protect your company from costly lawsuits and administrative penalties. FTC penalties can be costly, ranging anywhere from $16,000 to $40,000 per complaint. Naturally, these policies aren’t cheap; however, they can be extremely valuable for growing businesses. Since fraudulent sales scams often occur online, policies that protect against these types of scams are essential for any e-commerce business.
3. Establish And Maintain a Reputation
If you run a repair shop, for example, a contract performance bond will guarantee that you’ll finish the work you promise to do. A performance and payment bond will ensure payment for services rendered if you’re in medical practice. As you’re likely aware, building a positive reputation is one of the most crucial factors in determining the future success of a business. After all, potential customers are more likely to buy from a company with a good reputation than one without. Unfortunately, establishing and maintaining a positive reputation isn’t easy. In order to build a reputable business, you must perform the work you promise to do, complete projects on time, and be honest with all of your clients. Yet, we all know that things don’t always go as planned. Sometimes, things get delayed, or you simply don’t have the ability to meet the demands of your customers. If this happens, a contract performance bond can help you maintain your reputation by guaranteeing that you’ll finish the work you promise to do. Similarly, a performance and payment bond can help you avoid costly administrative penalties issued by state licensing boards and the federal government as a result of non-payment.
4. Secure Supply Chains
In this case, you’d want to purchase a haulage/transportation bond. These types of bonds protect against damage and non-delivery of goods as they are transported to your company. While it may seem like a given, a vast majority of all lost or damaged goods pass through the supply chain without any insurance coverage. As a result of this uninspected risk, damaged goods, theft, and non-delivery affect all levels of the supply chain. In fact, supply chain problems result in $300 billion in losses per year across the United States. By purchasing a haulage/transportation bond, you can minimize your risk from the transportation of goods from suppliers and distributors, protecting your company from devastating losses.
5. Leverage Investments with Leases
For this, you want to purchase what’s called an inland marine/general lease. These types of bonds protect against the loss of equipment and assets as they are leased to your company. While many small business owners finance their equipment with loans, this can be risky and difficult to do. After all, banks are hesitant to lend to small businesses due to their inherent risk. In order to finance your equipment without the help of a bank, you can lease it instead. Leasing equipment, vehicles, and other assets is a common practice among business owners, who often prefer leasing to long-term, high-cost loans. Despite the popularity of leasing, it’s these unsecured investments that make it a risky proposition.
6. Protect Against Operational Loss
Consider purchasing a general aggregate. These types of bonds protect against loss due to an act of nature, such as a natural disaster. By purchasing a general aggregate, you can protect yourself against costly losses caused by natural disasters, such as hurricanes, floods, wildfires, and other severe weather conditions. Generally, these policies aren’t cheap; however, they’re essential for protecting your company against devastating losses.
7. Assure Contractors and Employees
Finally, a surety bond insurance in New Jersey or an area near you can help your business grow by assuring contractors and employees. In this case, you’d want to purchase a FIDIC (International Federation of Consulting Engineers) contractor bond. These types of bonds are used to guarantee payment to subcontractors and are often required by government entities. Similarly, a FIDIC contractor bond can be used to guarantee employee payment.
Conclusion
As you can see from this guide, there are many ways a surety bond can help your business grow. While the decision to purchase a surety bond can be difficult and complicated, it is an essential part of running a sustainable and successful business. In order for your company to survive and thrive, you need to protect yourself from potential pitfalls.