An Overview of License & Permit Bonds
Because businesses are governed by rules, regulations, and laws, most must have permission from a government office to operate. They get this permission by filling out applications and paying for their licenses. In addition, the majority must also supply a bond of some kind. This bond is a promise—backed by a fee—that the business and its employees will obey the regulations and laws that the government enforces to protect consumers from unscrupulous business practices.
Who Must Get a Bond
There are many businesses that must operate under a bond. It would be impossible to list them all here, and they vary from state to state, but here is a short list of some of the people and businesses you probably work with every day who are not permitted to work without some kind of license or permit bond.
- Liquor stores
- Insurance agents
- Real estate salespeople and brokers
- Car dealers and salespeople
- Electricians and plumbers
- Private detectives
- Gasoline stations (tax bonds)
How Bonds Protect Consumers
In order to get a bond, a business must pass an investigation on many levels. For instance, if the surety company (the business that provides the bond to the business for a fee) is not confident of the applicant’s financial standing or professional qualifications, the surety will deny the bond. This is the first step in protecting the consumer.
The second step is making sure the applicant sticks to the promise to do business in the prescribed manner. This is done through the threat of revoking the bond for noncompliance, or if complaints are not dealt with. If the surety cancels the businesses bond, the license is no longer valid.
If the complaints or problems regarding the bonded business go unresolved, the surety eventually pays for whatever is necessary to make it right. In this regard, the surety is almost acting as an insurance company paying a claim. This is necessary because many of the issues covered in the surety bond are not covered by ordinary business insurance—most businesses are not allowed to insure their own companies against violations of codes or laws, so the surety picks up where business insurance leaves off. Here are some of the bonds and examples of how they would help.
Electrician Bond. An electrician who is hired to repair electrical wiring violates the code restrictions. To keep his bond, he must fix the problem at no cost to the homeowner.
Contractor. A concrete contractor is hired to build a driveway for a small business. The work was scheduled to be completed in two months. The contractor started it, but a year later had not finished it. The surety company paid for the project to be finished by another contractor.
Day Care License. Many states require a certain number of medical practitioners in a day care setting. A center that is found not to have enough nurses, for instance, must provide the additional nurse within a certain time frame or the business will lose its license.
Mortgage Broker Bond. A mortgage broker needs a bond to guarantee compliance with state mortgage regulations, and the bond covers restitutions should he or she not comply.
Licensing for Drug Manufacturers. This license is granted by the Food and Drug Administration mostly for individual drugs, and requires extensive tests in various stages to guarantee that the manufacturer has complied with all requirements in determining the safety of a new drug. A drug that does not pass is not marketed to consumers.
Even though some bonds and licenses don’t prevent all types of hazards and no bond can cover every possible event, you can see how the license and permit bond can offer much protection for the consumer. There are many of these bonds available, and cover everything from construction and personal appearance services to public officials’ actions and used car sales. The money behind the bond is what forces the business to take the regulations and laws more seriously, and the bond itself helps cover the costs of fixing any damage done.
Although it would be impossible for all of the available bonds to be listed here, an internet search will reveal some excellent sites for finding all different kinds of bonds. If you are looking for a specific kind of bond to apply for, check with your state offices before applying to make sure you are getting the correct ones, and will have enough coverage for your license.
If you are a consumer and are hiring work to be done, applying for a mortgage, or making a large purchase, consider checking to see if the person you are buying materials or services from needs a license to operate, and if he or she has a bond. For instance, if you hire a roofer who does not have a bond, you have no recourse for a job not done or done poorly and not to code. If you are a business, you can also require bonds from your employees. Look up information on fidelity bonds to see how they work.