OCCASIONALLY, a small business, especially those performing contracting services, will be asked to bond their work in advance. In some states, certain types of contractors are required to be bonded. 

If you live and work in the following states, you may need to be commercially bonded: Alabama, Colorado, Connecticut, Delaware, Washington D.C., Florida, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wisconsin. 

While the following states do not require bonding, they do require pre-opening escrow: Georgia, Hawaii, Illinois, Iowa, Oregon, and Washington (state).

Simply put, a bond is a financial guarantee that you will honor a business contract.  Sometimes referred to as a “surety bond,” a bond is a third party obligation promising to pay if a vendor does not fulfill its valid obligations under a contract. There are various types of bonds such as LICENSE bond, PERFORMANCE bond, BID bond, INDEMNITY bond, and PAYMENT bond make up the different types of bonds.  
  • A LICENSE bond is required by some states for certain businesses. In some cases you pay the state directly rather than obtaining a bond.
  • A PERFORMANCE bond is a guarantee that you will perform work in accordance with the terms of a contract.
  • A BID bond is a guarantee you will perform work if the bid is won by you.
  • An INDEMNITY bond promises to reimburse loss incurred if you fail to perform or if you fail to pay other vendors in the performance of the contact.
  • A PAYMENT bond promises you will pay all subcontractors and material providers utilized in the performance of a contract.

It is important to remember that a bond is not an insurance policy. A bond provides assurance that the contracted work will be satisfactorily completed only. For example, your bond will not pay for property damage or personal injury resulting from your work. For this you need conventional insurance coverage.

A simple Google search will list companies that provide bonding services under "surety bonds" in your area.  In general, bonding companies will only provide bond coverage in an amount that you can cover with existing liquid assets.

Before you purchase a bond from any bonding company, have the bond documentation reviewed by your attorney and ensure that you understand exactly what the bond can and cannot protect against. This will benefit both you and your customer.