An In-Depth Look At The Different Types Of Surety Bonds For Businesses

Types Of Surety Bonds a Company may require

The federal and provincial governments of Canada have put a large number of regulations in place to protect Canadians. While these rules and laws will undeniably help to protect consumers, they actually put a big strain on Canadian businesses and contractors. If you wish to run a business within the country of Canada, you will be required to obtain a surety bond at some point or another to legally operate your builder or Construction business. These bonds protect the consumer, while guaranteeing your business will abide by all rules and regulations set forth by the government. Below, you will learn more about the different bonds utilized commonly by Canadian businesses and contractors.

For Construction Contractors

Canadian contractors will need to take the time to learn about three or four different surety bonds. Although there is truly an abundance of different surety bonds, there are only three that are utilized on a regular basis. Nonetheless, the specifics will deviate from one project to the next. Therefore, it may be essential to obtain more than this minute amount. Below, you will learn about some of the surety bonds contractors will encounter.

Bid Bond

As a construction contractor, you will need to learn everything there is to know about the bid bond. This bond will be utilized, even if you’re not selected for the upcoming project. The name should give the bond’s purpose away. It is always utilized whenever the contractor intends to place a bid. Any time you plan to place a big on a new project, you will be required to obtain a bid bond in advance. While the bond might seem like a hindrance to you, it is surprisingly very beneficial. By making this a requirement, it is possible to eliminate shady companies and level the playing field.

Therefore, the bond’s presence will increase your chances of getting the job. For your client, the bond lets them know that you’re reliable and will acquire the performance and payment bonds, if they select your bid.



Performance Bond

The performance bond is commonly used by contractors and their clients. In almost all cases, you will be required to obtain a performance bond as soon as your bid has been accepted by the project owner. While the bid bond provides some degree of protection, the performance bond goes much further. This bond oversees your performance during the course of the project. The bond forces your company to meet all requirements set forth in the contract. If the client feels that you’ve strayed too far from the initial agreement, the bond will give them a suitable course of action to take.



In general, the client will consult with the surety issuer and subsequently file a claim against your company. At this point, it will be the surety provider’s responsibility to investigate the claim and determine whether or not your company did indeed breach the contract. Regardless, the bond gives the client the ability to take action, without needing to enter the courtroom so soon.

Payment Bond

As a contractor in Canada, you will find yourself obtaining payment bonds very frequently. The payment bond is used any time your business decides to outsource work to a subcontractor. Alternatively, it can also be used when obtaining materials from a supplier. This bond is one way of promising these entities and companies that you will indeed pay for their services. If you’re unable to pay their costs, the bond will provide these groups with protection. Much like your client, they’ll be able to reach out to your surety provider and file a complaint. From that point forward, it will be up to the surety company to determine what to do.

Maintenance Bond

While some construction bonds are almost always required, others are used infrequently. This is generally the case with the maintenance bond. It is normally only required when the client demands it. Sometimes, this bond is referred to as the warranty bond. It works very similar to a warranty, since it protects the client for a longer duration than the aforementioned performance bond. This bond will protect the client against detective materials, as well as shoddy work on your company’s behalf. The duration of the bond is agreed to in advance.

If the client spots problems or flaws during this duration, the maintenance bond will force your company to fix them right away. If you refuse to do so, they’ll be able to take action by speaking with the surety issuer and filing a complaint. While this bond isn’t always a requirement, you should obtain it if your client deems it a necessity.

Supply Bond

Another type of bond that you may come across at some point or another is the supply bond. The supply bond is put in place to ensure that the supplier will provide your company with the materials and supplies that were agreed upon initially. In some cases, the supplier will not be able to fulfill their obligation. When this happens, the surety will step in and rectify the situation. The principal is generally forced to obtain a supply bond anytime they’re working on a public construction project. Just remember that this is not always a necessity for all public projects. Be sure to check the specifics within your province and for your current project.

Other Commercial Bonds

Construction contractors aren’t the only businesses that will need to obtain bonds in the country of Canada. In fact, almost all Canadian businesses will be forced to acquire bonds at some point or another. Throughout all provinces across Canada different levels of industry require individuals to obtain surety bonds before they can become licensed. Why is this so? It’s simple really. Surety bonds are an agreement of sorts that ensure companies and businesses work ethically and within all laws that regulate the industry in which they work.

The license bond is simply one bond that is required for commercial establishments in Canada. For your consideration, some of the most common types of commercial bonds will be examined in greater depth below.

License Bond

It is almost always essential for a company to obtain a license, before they begin serving the residents of Canada. Surprisingly, your business cannot just go out and obtain their license. Instead, they’ll first need to obtain the associated license bond. The bond is a prerequisite and yet another way to protect the government of Canada and its residents. By obtaining this bond, you are confirming that your company will go above and beyond to obey all laws and regulations imposed on companies in your industry. And of course, the bond will give the government an easy way to take action should you fail to abide by these regulations.

Remember that certain businesses will be required to obtain certain types of bonds. There is the auctioneer bond, auto dealer bond, and even an energy broker bond. While each is given a unique name, they’re all prerequisites for getting a business license.

Livestock Bond

If you’re interested in buying or selling livestock and will be holding the livestock for less than 30 days, you will be required to obtain a livestock bond. All licensed dealers are required to pay for their purchases in full within just 3 working days. It is possible to extend this duration by speaking directly with the seller and signing a written agreement. If the payment isn’t made within the agreed upon time period, the producer will be able to take action against the livestock dealer. The producer or seller will be able to submit a claim by utilizing the Statutory of Declaration.

As you can see, this specific type of bond is primarily enforced to protect products from non-payment.

Customs Bonds

Companies involved in importing goods into Canada must obtain a customs bond. International carriers, who transport goods and cargo via vehicle, vessel or air to Canada from foreign countries, will need to obtain a customs bond. This bond is utilized for commercial purposes and ensures the federal government that importers will pay all taxes, fees and duties. If you are only planning to obtain a single entry into the country, you may only want to purchase a “single entry” customs bond. However, if you will be importing into the country frequently, you will probably be better off to go with the “continuous” customs bond. To learn more about the Canadian Requirements, click on this link.

Warehouse facility operators, who want to store imported or exported goods and cargo also need obtain a customs bond. Of course, you will need to determine what type of warehouse you want to establish. You will need to visit the Canada Port Authorities to establish a bonded warehouse. Anyone wanting to serve as a customs broker will also need to be customs bonded.  

Lottery Bonds

In the past, several businesses involved in selling lottery tickets and operating lottery equipment were caught rigging the system. This pushed the Canadian government to place stipulations on all businesses that sell lottery tickets to the general public. Most provinces and territories within the Canadian border now require these businesses to obtain a lottery bond. The bond is designed to help the federal government regulate laws, pertaining to lottery tickets, while also ensuring these businesses pay all due taxes upon sale of tickets.

Businesses that get lottery bonded also pledge to comply with other government regulations, including allocating funds to pay prizes, distributing gaming materials to the public and notifying the associated entity, when the lottery equipment fails.

A Look Into Business Service Bonds

Anytime you have a group of employees that work inside customers’ homes, there is always a temptation. Throughout Canada, you would be surprised at how many employees have stolen valuables out of the homes of consumers. Not only will the company be liable for the losses, but also this can damage the image of the company. Even if you put your employees through rigorous background checks, it just takes one simple mistake for an employee to tarnish your company’s reputation. It would be impossible for you to keep an eye on all of your employees at all times, but you may be surprised to learn that there is a way to protect your company and prevent your name from being tarnished. You can do this by purchasing a business service bond.

A business service bond is an optional surety bond that is available to companies, who have employees that work inside customer-based homes. It protects both you and the customer from financial loss, in the event of a theft. While the law does not require this bond, it genuinely can give you a leg up over your competition.