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Business bonds are generally intended to protect customers in cases where a business may not follow through with certain obligations or if the business fails to follow regulations related to their profession. If the business does violate one of those conditions, the customer can file a claim against the business's bond to receive some portion of the bond amount.

The way they work is that a bonding or insurance company will put back a certain amount of money (the bond total), and if a customer files a claim against the business they're working with, the bonding company will use the bond money to pay the customer's claim. Bonds are more or less a form of credit, so in the event of a claim, a business is expected to eventually pay back the bonding company for the total amount of the claim. Purchasing a bond usually costs between 1-15% of the total bond amount, depending on the business owner's credit score.

There are a few different types of bonds service businesses may need, each serving a different purpose:

License and permit bonds

The purpose of these bonds is to ensure that a business is in complete compliance with all laws and regulations, and if it's not, a customer can make a claim on the business's bond. Depending on the type of business and the state they operate in, they may be legally required to purchase one of these bonds in order to get a business license or permit.

Business service bonds

These bonds, also known as cleaning bonds, janitorial bonds, or fidelity bonds, can help businesses in instances where one of their employees steals something from a customer's home or office. They will still need to repay the bond if a claim is filed, however a business owner won't suddenly find their cleaning business owing a customer $800 all at once for a piece of jewelery one of their employees stole. They're also good for helping businesses stand out from the competition and can give customers piece of mind.

Contract bonds

Contract bonds are sometimes requested by customers for exceptionally large jobs so that the customer is financially covered in case a contractor isn't able to complete the job or if the contractor doesn't follow the agreed upon terms of the jobs. They may also be required for public and government contracts.