License & Permit Bonds

License & Permit Bonds are required by a state or municipal body when granting licenses to practice a specific activity or business. The bond ensures that the purchasing party will follow the rules and regulations of the state and imposes penalties for failure to comply. In cases of misconduct or fraud, a complaint can be levied against the bond.

There are many types of License & Permit Bonds. Some of these bonds include:

• Mortgage Bonds
• Auto Dealer Bonds
• Contractor License Bonds
• Airline Reporting Bond
• Auctioneer Bond
• Contractor License Bond
• Notary Bond
• Collection Agency Bonds

Like all surety bonds, there are three parties in a License & Permit Bond:

Principal: This is the business, agency or organization, buying the bond. The bond is usually required for the issuance a permit or license.

Surety: This is the company selling the bond, usually an insurance company or a bonding agency.

Obligee: The party requesting the bond. In this case, the federal, state or municipal licensing authority.

When applying for License & Permit Bonds

A bond agency will consider certain factors before issuing a bond. These factors include:
• The financial stability of the business and its partners.
• The credit score of the business partners.
• Any past issues — such as outstanding loans — against the business.

Some facts about License & Permit Bonds:

• A business may need to apply for multiple licenses if operating in different areas. A bond applies to only a specific activity or field. For instance, a car dealer agency must buy the Auto Dealer Bond in order to operate. If the company expands into offering loans, it must apply for mortgage bonds as well.

• The purpose of the bond is to protect the public. While an insurances policy is bought to protect a person’s interests, a surety bond, such as the License & Permit Bond, is intended to protect the general public against any misuse by the principal. In this way, it is critical for the principal to follow the rules and regulations of the industry or face punitive action.

• License & Permit Bonds are not expensive to buy. While the total face value of the bond may be high, the actual purchase price can be as low as 1%.

• It is possible to buy a License & Permit Bond even if you have a low credit score. The bonding company will do a broad check of your past record, and you will pay a higher price for the bond.