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Who Needs a Surety Bond?
If Someone Needs a Guarantee That You Will Do What You Promised, You Probably Need a Bond
Surety bonds exist wherever one party needs a financial guarantee that another party will fulfill an obligation. That obligation might be completing a construction project, paying subcontractors and suppliers, complying with state licensing laws, or handling other people's money responsibly.
The short answer to "who needs a surety bond?" is: anyone required by law, by contract, or by a government agency to guarantee their performance or compliance to a third party. In practice, this covers a wide range of industries and situations, but the single largest category of surety bond users in the United States is contractors.
At Grit Insurance Group, we specialize in helping contractors understand when bonding is required, what type of bond they need, and how to qualify. But bonding requirements extend well beyond construction. This page covers the most common situations where a surety bond is required and the industries that use them most.
Contractors on Public Construction Projects
This is the most common reason contractors need surety bonds. Federal law, state laws, and most local government procurement rules require contractors to be bonded on public construction projects.
At the federal level, the Miller Act requires contractors to provide performance and payment bonds on any federal construction project with a contract value over $150,000. Bid bonds are also required on virtually all competitively bid federal projects. The Miller Act has been in place since 1935, and it remains the backbone of public construction bonding in the United States.
Every state has its own version of the Miller Act, commonly called a "Little Miller Act," that applies the same bonding requirements to state-funded and locally funded construction projects. The specific thresholds vary by state. Some states require bonding on projects as low as $25,000, while others set the threshold at $100,000 or higher.
If you are a contractor who wants to bid on government work at any level, federal, state, or local, you will need to be bondable. The ability to secure bid, performance, and payment bonds is not optional. It is a prerequisite for competing.
Contractors on Private Construction Projects
Bonding is not limited to government work. Many private project owners, particularly on large commercial, industrial, and institutional projects, also require contractors to provide performance and payment bonds.
Private owners require bonds for the same reason government agencies do: they want a guarantee that the contractor will finish the job and pay everyone involved. The difference is that private bonding requirements are not set by statute. They are set by the project owner or the owner's lender as a condition of the construction contract.
If you are a general contractor or subcontractor working on larger private projects, expect bonding to be part of the conversation. Developers, corporations, hospitals, universities, and other private owners regularly require bonds on projects above a certain dollar threshold. Having an established bond program gives you a competitive advantage because you can respond to these requirements without delay.
Contractors Who Need a License Bond
Many states require contractors to carry a surety bond as a condition of obtaining or renewing their contractor's license. These are called license and permit bonds, and they are a form of commercial surety bond.
A contractor license bond protects the public. It guarantees that the licensed contractor will comply with state laws and regulations governing the construction industry. If a contractor violates those laws and causes financial harm to a consumer, the consumer can file a claim against the bond.
License bond requirements vary by state and by trade. Some states require a single statewide contractor license bond. Others have different bond requirements for different license classifications, such as general contractors, electrical contractors, plumbing contractors, or HVAC contractors. Bond amounts also vary, typically ranging from $5,000 to $50,000 depending on the state and the type of license.
If you are a contractor applying for a state or local license, check your state's requirements. Your bond agent can tell you exactly what bond you need and help you secure it quickly. For most license bonds, the process is simple and can often be completed on a one-page credit-based application.
Auto Dealers
Every state requires motor vehicle dealers to carry a surety bond as part of their dealer license. Auto dealer bonds guarantee that the dealer will comply with state motor vehicle laws, including proper title transfers, accurate odometer disclosures, and fair sales practices.
Bond amounts vary by state, typically ranging from $10,000 to $100,000. The bond protects consumers who are harmed by a dealer's violations of state law.
Freight Brokers
The Federal Motor Carrier Safety Administration (FMCSA) requires all licensed freight brokers and freight forwarders to maintain a surety bond or trust fund of $75,000. This bond, known as a BMC-84 bond, guarantees that the broker will pay carriers for transportation services as agreed.
This is a federal requirement with no exceptions. If you operate as a freight broker in the United States, you must carry this bond to maintain your operating authority.
Federal Motor Carrier Safety Administration (FMCSA)
Notaries Public
Most states require notaries public to carry a surety bond. A notary bond protects the public from financial harm caused by errors or misconduct in the notary's official duties, such as improperly witnessing signatures or failing to verify identities.
Notary bond amounts are set by state law and are generally modest, often ranging from $5,000 to $25,000. The process for obtaining a notary bond is straightforward and typically requires only a simple application.
Employers with ERISA-Covered Benefit Plans
The Employee Retirement Income Security Act (ERISA) requires employers who manage employee benefit plans, including retirement plans, health plans, and other welfare benefit programs, to carry a fidelity bond. This bond protects the plan participants from losses caused by fraud or dishonesty by the people who handle plan funds.
ERISA bonds are required for every person who handles funds or property of an employee benefit plan. The minimum bond amount is typically 10% of the plan assets handled, with a minimum of $1,000 and a maximum of $500,000 for most plans.
Other Businesses and Professionals Who Need Bonds
The industries listed above represent the most common surety bond requirements, but bonding extends into many other areas. Businesses and professionals who may need surety bonds include court-appointed fiduciaries such as guardians, executors, and administrators of estates; mortgage brokers and loan originators required by state law to carry bonds; title companies and escrow agents who handle funds on behalf of buyers and sellers; collection agencies licensed under state regulations; health clubs and fitness centers required by some states to bond membership fees; and various other licensed professionals depending on state-specific requirements.
If you are unsure whether your business or profession requires a surety bond, ask your bond agent. Requirements vary by state and by industry, and a knowledgeable agent can research the specific rules that apply to your situation.
How Do You Know If You Need a Bond?
There are a few common situations that signal you need a surety bond. If you are bidding on a government construction project, the bid documents will specify the bonding requirements. If you are applying for a business license or contractor's license, your state licensing agency will tell you whether a bond is required and in what amount. If a contract you are signing includes a bonding requirement, the contract language will specify the type and amount of bond needed.
In all of these cases, the requirement is coming from an external party: a government agency, a project owner, or a regulatory body. You do not choose whether to be bonded. The party requiring the bond makes that decision, and your job is to qualify for it.
If you are not sure where you stand or what you need, start with our Contractor Bond Scorecard. It evaluates your readiness across the three areas every surety looks at and gives you a clear picture of your current position.
Take the Contractor Bond Scorecard
How Contractors Qualify for Bonds
Ready to Get Bonded?
Whether you need a bond for a specific project, a license requirement, or a federal regulation, our team can help you find the right bond and get it issued quickly. For smaller bonds, we can often get you approved on a simple one-page application. For larger contract surety programs, we will work with you to build the underwriting file that supports your needs.
Want to find out if you need a bond? Call us at (801) 505-5500.