Why and How to Get Bonded in Canada

Bonding Gives Your Small Business a Competitive Edge

Portrait of smiling dog daycare owner with schnauzer.
How to get bonded in Canada. Image (c) Hero Images/ Getty Images

Why You Should Learn How to Get Bonded

If you’ve ever been interviewed for a job, you’re probably familiar with the question, “Can you be bonded?” As your prospective employer is asking the question because he or she wants to know if you’re a trustworthy type with no criminal record, it’s a good thing to be able to answer “yes”.

But being bonded is also a good thing for small businesses. Clients and customers want to know the very same thing and view being bonded as a sign that yours is a reputable, honest company.

And being bonded protects your company against potential losses caused by theft or incompetence. If you operate a pet sitting business, for example, and a fractious dog destroys a set of lawn furniture while one of your employees is playing with it in your client’s back yard, your business insurance through bonding would cover the cost of the damage.

Some business are required to be bonded by law, but even if you’re not, getting bonding insurance can be a good idea because just being able to say and advertise that your business is bonded can increase the business that you do.

What is Bonding?

Let’s be clear here; there are different types of bonds. (See the next section.) But all bonds are basically a type of insurance that protect against loss. You purchase the type of bond you need to protect your business and then, if and when that specified loss occurs, the insurer covers the loss instead of you, as in the example above.

Types of Business Bonds

The case of the fractious dog above is an example of a fidelity bond. This is the type of bond that most people think of when they think of bonding. Fidelity bonds protect businesses from employee dishonesty and/or damage to a client’s property. Fidelity bonds are often purchased as part of an insurance package.

Contract bonds, on the other hand, are a type of surety bond and protect your clients from non-completion of a contract. If, for instance, you are a contractor who does home renovations and you have a contract with a client to renovate a kitchen but don’t finish the job, the contract bond would be paid out to your client, who could them use the money to hire someone to finish what you had started. (Be aware that with this type of bond, the insurer may then come back to you for reimbursement.)

If you’re exporting, you’ll need bonds such as an Account Performance Security Guarantee (Export Development Canada) which protects your bank if your customer demands payment, or a Foreign Exchange Facility Guarantee which makes your life easier by encouraging your foreign exchange provider to forego collateral.

There are many other types of bonds that are specific to particular industries.

How to Get Bonded in Canada

1) First, be aware that there are many different types of bonds, so you need to make sure that you’re getting the bonding insurance that’s right for you.

As you see above, different types of bonds are designed to protect against different situations and potential losses.

2) Find a bond provider.

Your current insurer provider is a good place to start. There are probably also several other local insurance agents to check with.

The internet will be an invaluable resource. Enter a search term such as “surety bonds Canada” or “fidelity bonds Canada” into your browser search window and you’ll have pages to choose from. Try narrowing your search to your specific industry to cut to the chase; “pet sitting bonding” will bring up pages of choices all by itself.

3) Ask for a quote.

Getting one will involve filling out an application form, whether you’re filling one out online or going over a form with an insurance agent in his office.

Be prepared by having all the pertinent business information you’ll require at hand, such as a complete list of the services you provide, your business’s annual revenue, the number of years your business has been operating, etc.

4) Repeat step 2 at least three times and maybe more.

This one is really important because the cost of such insurance varies greatly. And as the cost of business insurance has generally been surging upwards, you want to make sure you’re getting the most insurance for the least amount of money possible.

5) Review the quotes you’re gathered and choose a bonding company.

Remember to make sure you’re comparing apples to apples and not apples to oranges. Compare not only the prices of the bonding insurance being offered but the exact services being covered. For example, to return to the pet-sitting business example, do you provide pet grooming services as well as walking services and are those also covered by the bonding insurance?

Generally, your premiums will be based on the amount of coverage requested, the total number of employees, the business activities of your company, and the amount of the deductible. Be sure you investigate the possibility of bundling this insurance with other types your business needs, such as liability insurance.

6) Sign and pay.

Once you’ve made your choice, it’s time to sign the agreement with the insurer that lays out what your bond does and doesn’t cover. Read it carefully. Be sure you understand issues such as the procedure for filing a claim and how long processing a claim generally takes.

There may be other forms the insurance company asks you to complete and sign.

And then it’s payment time. Usually you’ll have a choice of making payments annually, quarterly or monthly.

And that’s it! You're bonded in Canada! Now all you have to do know is remember to review your insurance and update it when necessary, such as when you hire a new employee who also needs to be covered. And isn’t it great to be able to tell your clients and customers that you’re insured and bonded?