- December 21, 2016
- Posted by: Surety Bond Experts
- Categories: License Bond, Permit Bond, Surety Bonds
License and permit bonds are often referred to simply as license bonds. These are commercial bonds for specific industries, which are usually mandated in order to obtain a license to run a business legally.
A license bond is required to guarantee that a business operates in accordance with federal, state, or local laws and regulations. Each license bond is tailored to the specific industry and protects customers and/or the state from damages due to negligence or fraud by individual businesses.
The price of a license bond varies, depending on the specific industry, the business size and the state in which the business is operating. One of the most important factors is the applicant’s credit score. A premium must be paid and is a calculated percentage of the total bond amount required.
There are a many industries where a license is needed, for example:
Contractor’s licenses: Guarantees that contractors, electricians, plumbers, and general contractors follow their contractual obligations.
Customs bonds: Must be obtained in order to import goods into the United States or run a business in import related fields. The purpose of such bonds are to guarantee that businesses follow import/export laws.
Auto dealer bonds: Makes certain that the entire automobile industry follows specified regulations.
Reclamation bonds: Associated with the need to protect the environment in the mining industry.
Broker’s bond: This bond is in respect to mortgages, title agencies, and insurance policy providers.
Health spa bonds: Ensures that spas are registered with the proper agency and follow all applicable laws and regulations.
Agricultural Packers Bonds: Guarantees that fair trade practices and financial integrity are followed for any company that sells or resells agricultural products.
Alcohol Bonds: This bond is required by federal and state governments, in order to manufacture, sell, ship or warehouse alcoholic.
ARC Bonds: This bond is mandated by the Airlines Report Commission for any legally operating travel agency. This guarantees that the travel agency submits air travel payment collected from the customer to the appropriate airline.
Brewers Bond: Also known as a TTB bond, it is an alcohol tax bond which is needed in order to legally operate a brewery.
Broker Bonds: The different types of Broker Bonds available are Freight Broker, Insurance Broker, and Mortgage Broker Bonds.
Business Opportunity Seller Bond: This bond guarantees that someone who is opening a business (aka a “business opportunity”) adheres to respective state’s laws and regulations.
Cigarette Tax Bonds: Guarantees payment of taxes on cigarettes. This bond is required of cigarette distributors.
Collection Agency Bonds: Guarantees a collection agency operates within the rules and regulations specified. Collection agencies are considered high risk because they are in the business of collecting debts, which are not often successful.
Contractor License Bonds: Required by local governments in order for a contractor to legally operate.
Credit Services Organization (CSO) Surety Bonds: Protection for consumers of various credit services and ensures that CSOs comply with all appropriate state regulations.
Department of Defense (DoD) Performance Bond: Also known as Military Freight Bonds, it is required of all transportation brokers that wish to transport DoD freight.
Detective/Private Investigator Bond: Also known as a private investigator bond, it is used to protect clients receiving services from professional investigators.
Franchise and Ordinance Bond: Safeguards those licensed to grant a privilege on a public property comply with all regulations and ordinances.
Freight Broker Bonds (BMC-84): A required bond of the Federal Motor Carrier Safety Administration (FMCSA). It protects shippers and motor carriers.
Fuel Tax Bonds: Used to check the payment of taxes on fuel sold.
Grain and Commodity Bonds: Ensures the compliance of regulations governing dealers of grain and other commodities, and includes payment to producers, among other protections.
Health Club Bonds: Guarantees that a health club adheres to the contractual obligations specified in their customers’ prepaid membership.
Home Dealer Bonds: Required of home dealers to guarantee their performance with off-site built homes.
Money Transmitter Bonds: Used to ensure that money transmitters operate within the terms of their license.
License and permit bonds are required of different businesses in various industries. They guarantee that the business will adhere to all federal, state and local laws and regulations. Depending on the risk factor of claims being filed in an industry, will be a determining factor as to how much a bonded amount is. The applicant then pays a premium (based on a percentage of the total bonded amount), which is determined the applicant’s business and financial history.
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