It is an exciting time for business everywhere. There seems to be an economic boom occurring, which is helping many business owners expand their small businesses into slightly larger ones. As most business owners know, growth means that risk becomes a little greater, putting small business owners in a tough position.
An owner attempting to grow is naturally going to be a little on edge and may not have sure-footing as he or she expands, which puts this person at greater risk. This is the reason more savvy business owners are turning to surety bonds to help offset the risks.
What are Surety Bonds?
As experienced experts working at JW Surety Bonds might point out, surety bonds are contracts between three different parties. The principal is the party that needs the monetary support, which the bond is meant to provide. There is also the obligee. This is the party requesting the bond.
The last party involved in the contract is the surety, which is a company that promises the obligee that the principal will meet his or her obligations as promised. Most businesses are starting to turn to these surety bonds instead of getting a bank letter of credit, which were traditionally used to convince the third party. The surety bond is there to help pay for any losses sustained from things like missed deadlines, just as an example.
How Will Surety Bonds Help Growing Businesses?
Most business owners know that expanding means taking on great risks, as mentioned earlier, which is one reason some owners fail to expand or are apprehensive about the idea. Most of the time, the reason business leaders fail to take additional steps is because revenue stretches when expanding. As you know, being financially unstable puts a business at risk.
Well, surety bonds do not count against the amount a business can borrow. Letters of credit actually work against your borrowing ability, which means less money in your pocket. This means that your business will be more vulnerable when it does not have to be. More money gives you better footing, and that could give you some leeway should things get rocky during your business expansion.
Working With Risk Advisors
As mentioned earlier, businesses take on many risks. As a business owner, you know this, and it is probably the reason why you've hired a risk advisor or at least have one that you can contact. It is important that you consider talking to this person before expanding so that you can figure out your capacity for surety bonds.
You probably have a number of letters of credit that can be easily replaced by these bonds. Keep in mind that taking this step helps diversify your finances. Using a handful of letters of credit means that you are relying on just a few large banks. You know that spreading risk dilutes it altogether, which is one reason why taking this step may actually help.
What you want to keep in mind is that these surety bonds are meant to help protect your assets and revenue.
If anything goes wrong and a company or individual tries to sue you for some reason, they are going to go after the insurance company that is handling your surety bonds. It may seem like an inopportune time to try to make all these changes, especially if you are expanding your business, but being patient and doing things right should help put you in a better position in the future. Hopefully, some of this information helps make it clear why this might be the right move.