How to Get Insured & Bonded in Ohio

Every business runs financial risks as it operates, whether from accidents, employee theft, or claims and court judgments against them. And most business owners do not have the financial assets to cover their company from large debts. That is what liability insurance is for – to protect the assets of a business or individual.

Purchasing a surety bond provides an extra level of protection to the public. It transfers the financial risk from the company to the bond company to be sure that any injury or damage caused by the company will be covered. In order to protect the public, the state of Ohio requires that certain businesses – notably construction companies – be both insured and bonded. It is important for a business owner to understand the different types of surety bonds the state requires.

Many people are under the impression that a surety bond provides insurance to protect the enterprise that buys it. This is not actually the case. Think of a surety bond, rather, as insurance for the public.

A surety bond is an agreement between three parties: the surety company, the business owner and the government, here the state of Ohio. The surety provides a financial guarantee to the state of Ohio that the business owner will fulfill their obligations under the law, including complying with state or local laws relevant to their particular business and meeting the terms of their contracts. If the business fails to meet their legal obligations, the surety may have to pay a claim to the state or municipality.

Ohio requires three distinct types of surety bonds in different situations. They are:

• License bonds (also called commercial surety bonds) for certain professions.
  
• Contractor bonds (also called contract bonds) for public projects.
  
• Court bonds.
  

License bonds are surety bonds required in Ohio for those who practice certain professions. These include agricultural packers, import/export business, auto dealers and contractors.

If a business owner is not sure whether Ohio state or relevant city or county governments require a license bond and/or insurance for their type of work, they should check with the Ohio Department of Commerce. Generally, financial experts recommend that every business should carry liability insurance even if not required by the state.

The surety that issues license and permit bonds guarantees that the business follows the regulations mandated for their particular license. License violations might include misrepresentation, fraud or failure to pay in a timely fashion. If a violation results in a claim against the bond that the business cannot resolve, the surety steps up to pay the claim.

A contract bond, also known as a contractor bond, is a specific type of bond that covers the contract, not the business in general. A contract bond guarantees that the contractor will complete a particular project per the contract terms. Contract bonds are required on all public projects in Ohio. Some private projects also require contractors to obtain contract bonds.

Although they are used in several industries, they are primarily obtained by construction contractors to guarantee that if the contractor fails to complete a job, the owner of the project will be compensated with a financial payout or some other action that ensures that the work will be completed per the terms of the contract. That's why they are also called construction bonds.

Note that different surety bonds may be required at different steps in a construction project. Bid bonds may be needed during the bidding process. These surety bonds guarantee that general contractors will fulfill the project at the bid price and that they will also obtain performance bonds before starting work. Performance bonds guarantee different stages of the project. They can be supply bonds, site improvement bonds, payment bonds, maintenance bonds, construction bonds and bid bonds.

Court surety bonds are bonds mandated by court order. They guarantee that a litigant will undertake their legal obligations as specified by state or federal courts in Ohio. These are personal bonds, not commercial bonds.

Bonds are required by the Ohio courts in a wide variety of circumstances. A common example is the requirement that a person who has lost a court case and wants to appeal must post a bond pending the outcome of the appeal. This is to guarantee that the successful litigant will be compensated should the losing party lose their appeal.

Ohio courts also require that anyone who becomes a legal guardian of a minor or a disabled person post a bond. Likewise, anyone who is named an estate fiduciary must also post a surety bond.

Once a business determines that it needs a surety bond to operate in Ohio, the process of obtaining the bond is not difficult. Many surety companies allow a business to apply for a surety bond online, by filling out an application detailing their situation. Once the business is approved, it can submit the indemnity agreement and pay for the bond online.

The bonding process can be expensive. In Ohio, surety bonds generally cost between 1 percent and 15 percent of the required bond amount. It is a good idea to apply to several surety companies and get quotes before signing on the dotted line.

The best way for an individual or business to find out whether they qualify for a surety bond in Ohio is to fill out one or more online applications. Another method is to use a surety bond cost calculator for a bond quote. This includes a summary of which bonds a business qualifies for and the amount they are likely to cost.

If a business or individual seeking a bond has bad credit, it may impact the ability to get surety bonds, depending on how significant the credit issues are. Remember that the surety is guaranteeing that a business will fulfill its obligations, including paying its debts. The business is ultimately responsible for repaying all claims against them covered by the surety. That means that credit history is very relevant in assessing risk to the surety company.

Some surety bond companies have separate "bad credit" applications for those with credit issues. The cost of the bond is likely to be higher for low credit scores.