What Does Licensed & Bonded Mean?

Getting Licensed

Depending on what type of business you start, your local government may require you to get licensed. To get licensed, you typically have to fill out a form and pay a fee with your city or local government. In some cases, you may also have to take an exam to prove that you know enough about the area to be licensed as a business. Then you will get a certificate that shows you are licensed to do business.

Some industries also require you to be bonded in addition to being licensed. Getting bonded is a process that involves working with a company that sells surety bonds. When you get bonded, the surety bond company thoroughly checks you out. Then the surety bond company sells you a business bond and stands behind you. If you do any damage or cause problems for a customer in some way, they can file a claim with your bond company and be reimbursed. This helps protect the consumer from being taken advantage of.

Although a surety bond sounds similar to business insurance, it is different in a few key ways. With surety bonds, you pay regular fees to the bond holder to keep the bond. Then if you have to file a claim, the surety bond company will pay it. At that point, you are responsible for repaying the amount that the bond company had to pay. This makes it a form of business lending that can protect you and your customers.

When starting a business, getting licensed and bonded can help you attract new customers. From a customer's point of view, it only makes sense to deal with companies that are bonded and licensed. This gives them some assurance knowing that they are dealing with a legitimate business. If you do not get licensed, you may be in violation of local regulations and you could have to pay a fee. If you fail to get bonded, customers may not feel comfortable working with you.