What Are Commercial Bonds?
Commercial bonds — also called surety bonds — are a three-party financial guarantee instrument used to ensure that a business or individual fulfills a specific obligation. Unlike insurance, which protects the policyholder, a bond protects the party that requires it — a government licensing authority, a property owner, a project owner, or a client. The bonded party (the principal) pays the bond premium, but the bond guarantees performance or compliance for the benefit of someone else (the obligee).
GLS Insurance provides commercial bonds for businesses, contractors, and individuals across all 17 states in our service territory. As an independent agency, we work with multiple surety carriers to find bond programs for a wide range of business types and bond obligations.
Types of Commercial Bonds
License and Permit Bonds
Required by state and local licensing authorities as a condition of obtaining or renewing a business or contractor license. Common examples include contractor license bonds required by state contractor licensing boards in states like Florida, North Carolina, and Tennessee; auto dealer bonds required by state DMVs; mortgage broker bonds; and many others. License bonds protect consumers from financial harm caused by the licensed business.
Contract Bonds / Performance and Payment Bonds
Required on construction projects to guarantee that a contractor will complete the project (performance bond) and pay its subcontractors and suppliers (payment bond). Contract bonds are required on most public construction projects — schools, municipal buildings, highways, and other government work — and are increasingly required on large private commercial construction projects.
Fidelity Bonds / Employee Dishonesty Bonds
Protect businesses from financial losses caused by dishonest or fraudulent acts of employees. Common for businesses that handle client funds, including financial services firms, accounting practices, and nonprofit organizations managing donor funds.
Court Bonds
Required by courts in certain legal proceedings, including probate bonds, executor bonds, and appeal bonds. GLS Insurance can assist with court bonds in all 17 states.
Bonds vs. Insurance: Key Differences
The most important distinction: insurance protects the insured (you). A bond protects the party requiring it (your client, a government authority, or a property owner). If you violate the conditions of your bond and the surety company pays a claim, the surety company has the right to seek reimbursement from you. Bonds are a financial guarantee, not risk transfer in the insurance sense.
Commercial Bonds FAQ
Is a bond the same as insurance?
No. Insurance transfers risk from the insured to the insurer — if a covered loss occurs, the insurer pays without seeking reimbursement from the insured. A bond guarantees performance or compliance for a third party — if the bond is called, the surety company pays the claimant but then seeks reimbursement from the bonded party. Many businesses need both insurance and bonds for different purposes.
How much does a contractor license bond cost?
License bond premiums are typically a small percentage of the bond amount. A $10,000 contractor license bond might cost $100–$200 per year depending on the bond amount required, the state, and your credit history. Businesses with strong credit typically pay lower surety premiums. GLS Insurance works with multiple surety markets to find the best premium for your bond requirements.
Does my general contractor require me to be bonded as a subcontractor?
Some general contractors require subcontractors to be bonded on specific projects, particularly large commercial or public works projects. More commonly, GCs require proof of insurance rather than a bond. On public projects, performance and payment bonds are typically required from the GC, who may in turn require sub-bonds from major subcontractors on large projects.
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