How to Get Licensed and Bonded

By Susan Landis-Steward , last updated July 14, 2011

Being licensed and bonded means that you've met the qualification for a license in your field of expertise and that you have agreed to follow all the rules of the governing body for your profession. The bond, known as a surety bond, assures your customers that if you fail to perform properly, and if you break the rules of your profession, the customer can file a claim against the bond for any losses. You could think of bonding as a form of insurance for your customers. However, in this case, if the customer makes a claim and the bonding agency pays it, they will then expect you to pay the bonding agency back along with any attorney fees.

First, you need your license. You may need to pass a test and a criminal record check, show a certain number of years of experience in the field, have a certificate from a certified training program, and/or meet financial requirements. The best way to find out exactly what requirements are for licensing in your area is to find out what agency regulates the license in your field. It may be a union, a state board, or some other agency.
Then, you need to find a bond producer or bond agent who will supply you with a surety bond. Because surety bonds assume there will never be a claim against you, they will not extend bonding to everyone. They need a guarantee that you know what you're doing and that you have a clean record in terms of your performance and completion of projects. When you apply for a bond, they will look at four things: how long have you been in business, how stable your finances are, how well respected you are among others in your profession, and how well you know your own limits.
The bonding agency will want to know that you've been in business for a while, that your employees don't turn over too quickly, and what the transition planning is for the business if you leave, retire, or die. They will want to see your business plan and will check into the way you treat your employees.
Your finances will be scrutinized carefully to make sure you have solid cash flow and good credit. They will look at your relationship with your vendors, subcontractors, and banks. They will also look at your assets—tools, equipment, machinery—to determine your net worth.
The bonding agent will also look at your reputation with customers, suppliers, others in your field, and our employees to make sure you have the integrity to make you a good risk. They will look at how you keep records, your accounting procedures, and how you manage your accounts.
Capacity is how well you know your limits. If you are taking on too much business too fast, you might not be a good risk. The bonding agency will look at your rate of growth, how you are meeting the goals of your business plan, and how cautious you are about spending capital.
Once you've been approved, the agency will let you know about costs and limitations.
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