To get bonded for a business, you apply through a surety company or a licensed bond agent, pass a credit and financial review, pay an annual premium (usually 1% to 15% of the bond amount), sign a General Agreement of Indemnity, and file the executed bond with the government agency or client that required it. A simple license bond can be approved in minutes online. A large contract bond can take several weeks.
A surety bond is a three-party arrangement. Your business (the principal) promises to meet an obligation. A government agency or client (the obligee) requires proof of that promise. An insurance company (the surety) backs it financially. If your business fails to perform, the surety pays the obligee and then collects that money back from you.
Make Sure You Need a Surety Bond, Not a Fidelity Bond
These get confused constantly. A surety bond protects your customers, clients, or a regulator from your business failing to meet its obligations. A fidelity bond protects your business from losses caused by employee dishonesty, like theft or embezzlement. When a licensing agency or client tells you to “get bonded,” they almost always mean a surety bond. Fidelity bonds are voluntary coverage you buy for internal risk.
Identify Which Bond You Need
The type of bond drives every step that follows, from the paperwork to the premium.
License and Permit Bonds
Most states and municipalities require a license or permit bond before issuing certain business licenses. Contractors, auto dealers, freight brokers, mortgage lenders, and collection agencies are among the most commonly bonded professions, though the list varies by jurisdiction. The obligee sets the bond amount by local law, usually a fixed figure tied to your license type. These are the simplest bonds to get. Amounts tend to be smaller and underwriting is lighter.
Contract Bonds
Contract bonds guarantee a specific project. Performance bonds protect the project owner if you fail to finish the work. Payment bonds protect the subcontractors and material suppliers you hire. Federal acquisition regulations require both on any construction contract exceeding $150,000.1Acquisition.GOV. FAR Part 28 – Bonds and Insurance States have their own versions, often called “Little Miller Acts,” with thresholds that vary widely.
Gather Your Documentation Before You Apply
Having your paperwork ready before you contact a surety saves weeks of back-and-forth.
Business Identification
Your legal business name must match exactly what appears on your formation documents. You’ll need your Employer Identification Number from the IRS2Internal Revenue Service. Get an Employer Identification Number and your physical business address. Some industries require extra registration numbers; mortgage-related businesses, for example, need a National Producer Number through the Nationwide Multistate Licensing System.3NMLS. NMLS Account Creation for Surety Bond Producers
Personal Information for the Owners
Sureties look through the business to the people behind it. Every owner with significant equity has to provide a Social Security number and a personal financial statement showing individual assets and liabilities. This is where a lot of first-time applicants stall, especially those with business partners. Line this up early.
Financial Statements
For license bonds under roughly $50,000, most sureties rely primarily on your credit score and skip detailed financial review. Above that threshold, or for construction contract bonds, expect to submit balance sheets, income statements, and cash flow statements. Underwriters use these to evaluate profitability, working capital, and whether the business can handle the bonded obligation.4National Association of Surety Bond Producers. What Do Commercial Surety Underwriters Look for in Financial Statements Larger contract bonds may require audited or CPA-reviewed statements.
Apply and Go Through Underwriting
You submit the application directly to a surety company or through a licensed bond agent or broker. For common license bonds, this can be done entirely online and approved in minutes. High-value contract bonds involve more back-and-forth and may require mailing original financial documents.
Underwriters look at two things above all else: creditworthiness and capacity to perform. Your personal credit score is the single biggest factor for most bonds. A score above 700 puts you in the best position, both for approval and for the lowest premium. Scores between 650 and 700 are workable but cost more. Below 650, expect higher rates, additional scrutiny, and possible denial.
For contract bonds, underwriters go deeper. They examine your track record on past projects, your current backlog, working capital, and whether you have the equipment and workforce to handle the job. A contractor with ten years of successful completions and mediocre credit may get bonded more easily than a startup with perfect credit and no track record.
What You’ll Pay for the Bond
The premium is your annual cost, calculated as a percentage of the total bond amount. That percentage depends mostly on your credit profile.
- With good credit (700+), premiums usually run 1% to 3%. On a $25,000 license bond, that’s roughly $250 to $750 per year.
- With average credit (650–699), premiums typically fall between 3% and 5%. That same $25,000 bond might run $750 to $1,250 annually.
- With poor credit (below 650), rates can climb to 8% to 15%. A $25,000 bond could cost $2,000 or more per year.
The bond amount is not what you pay. This trips up a lot of first-time applicants. If your obligee requires a $50,000 bond and your premium rate is 2%, you pay $1,000, not $50,000. The bond amount is the maximum the surety would pay on a claim. Your premium is the surety’s fee for taking on that risk.
You have to pay the premium before the surety issues the bond. Once payment clears, the surety generates the bond document and sends it to you for signature.
Read the Indemnity Agreement Before You Sign
This is the part of the process that catches people off guard. Before issuing the bond, the surety will require you to sign a General Agreement of Indemnity. It’s separate from the bond itself and far more consequential to you personally. By signing, you agree to reimburse the surety for every dollar it pays out on a claim, plus all legal fees, investigation costs, and related expenses.5eCFR. 13 CFR Part 115 – Surety Bond Guarantee
A surety bond is not insurance for your benefit. If a valid claim is paid, the surety turns to you for full reimbursement. For construction bonds and higher-value commercial bonds, the surety will typically require personal indemnity from all owners and their spouses, not just the business entity. The surety may also require collateral, particularly for higher-risk accounts. This is the document that puts your personal assets on the line, so read it carefully.
File the Executed Bond With the Obligee
After you’ve signed the bond and the indemnity agreement, the completed bond has to be delivered to the obligee. This is the step where your business officially becomes bonded.
Most obligees require the original bond document. For paper bonds, that typically means a raised corporate seal or an original signature from the surety’s authorized representative.6Acquisition.GOV. FAR and GSAR Class Deviation – Flexibilities for Signatures and Seals on Bonds A photocopy will almost always be rejected. You’ll also need to include a Power of Attorney document from the surety proving that the person who signed on its behalf had authority to do so. Without it, the obligee won’t accept your filing.
Some regulators now accept bonds electronically. Federal agencies accept electronic and mechanically-applied signatures and seals on bonds and powers of attorney.6Acquisition.GOV. FAR and GSAR Class Deviation – Flexibilities for Signatures and Seals on Bonds Check with your specific obligee to see whether digital submission is available. Once the obligee accepts the bond, ask for written confirmation and keep copies of the accepted bond, the Power of Attorney, and your premium receipt for audits and renewals.
If You Can’t Qualify: The SBA Surety Bond Guarantee Program
If your business is small, new, or has credit issues that make traditional bonding difficult, the Small Business Administration runs a program specifically for this situation. The SBA guarantees a portion of the surety’s loss if your bond is called, which makes sureties far more willing to approve businesses they would otherwise decline.
The program covers bid, payment, and performance bonds. Under current figures, the SBA will guarantee bonds on contracts up to $9 million, or up to $14 million if a federal contracting officer certifies the guarantee is necessary.7U.S. Small Business Administration. Become an SBA Surety Partner The SBA guarantees up to 90% of the surety’s losses on contracts of $100,000 or less, and on bonds issued to socially and economically disadvantaged small businesses, HUBZone businesses, 8(a) program participants, and veteran-owned businesses. For all other contracts, the guarantee is up to 80%.8Office of the Law Revision Counsel. 15 USC 694b – Surety Bond Guarantees
You don’t apply to the SBA directly. Work with a surety company or agent that participates in the program, and they submit the application on your behalf.
Keeping the Bond Active
Most business bonds are written as continuous bonds: a one-year term that automatically renews each year unless one of the parties terminates it. You pay a renewal premium annually, but you usually don’t need to file a new bond document. Some obligees ask for a continuation certificate; others require a completely new bond at each renewal, which means going through the filing process again.
If your surety cancels your bond or you fail to renew, most regulators will suspend or revoke the license that required it. Sureties are generally required to give at least 30 days’ notice to both you and the obligee before cancellation takes effect, which gives you a narrow window to secure a replacement bond from another surety. Reinstating a revoked license is far more expensive and time-consuming than replacing the bond on time. Some licensing boards require delinquent fees, retesting, or additional continuing education before they’ll reinstate you.