Every day, entrepreneurs face the challenge of making good decisions for their businesses. There are tons of decisions you can make that can positively impact your business. Purchasing a bond insurance policy is one of those decisions. Most business owners think that a bond insurance policy only benefits investors. The truth is, it is an essential tool that can help them grow their business. According to the Surety & Fidelity Association of America (SFAA), the surety market will be worth more than $25 billion by 2027, driven by a compound annual growth rate (CAGR) of 6.5% from 2020 to 2027. This shows that many business owners understand the benefits of bond insurance.
The Basics of Bond Insurance
Bond insurance is an agreement that assures investors they’ll be indemnified if your business violates the terms and conditions of the bond. When you have bond insurance, your insurer compensates the investors on your behalf. There are three parties involved in a bond insurance policy.
- The first party is your business, also referred to as the principal.
- Next is the obligee or the party needing protection. It could be your customers, investors, or another company.
- Lastly, there’s your insurer, also referred to as the surety company.
The cost of bond insurance is typically a percentage of the total bond amount. Other factors, such as your credit score, can also affect the cost of premiums.
How Does Bond Insurance Benefit a Growing Business?
Bond insurance protects a growing business in the following ways:
- It protects your business from financial losses – Bond insurance protects your business against losses that can arise from unexpected events. Paying out a lump sum of money in a lawsuit can bankrupt your business. While you can’t accurately predict the challenges you will encounter in the future, you can take measures that can protect your future. You should not let unforeseen events stop your business from meeting its financial responsibilities.
- It helps you manage risks in your business – Proper risk management is a skill that can help you achieve long-term business success. Purchasing a bond insurance policy is one of the most practical ways to manage risks. Your investors expect your business to meet specific terms and conditions. Sometimes, unforeseen situations can prevent you from fulfilling those terms. Bond insurance protects you against lawsuits that could cripple your business financially. When a lawsuit is filed against your business, you get to pay for the bond yourself. You also spend more money hiring an attorney to represent your business. A bond insurance policy protects your business from such liabilities.
- It boosts the confidence of your investors and customers – Today, there’s plenty of educative information available on the internet. So, people are making more informed decisions when it comes to investing. Investors and customers now prefer bonded companies over those that are not. A bond insurance policy does more than boost your credibility. It increases the confidence of your investors and customers. They get a risk-free opportunity to sample your products and services offerings. Every customer interaction allows you to build long-term relationships. In the end, you develop a company that people can trust.