A winning website is undoubtedly one of the greatest assets at any business owner’s disposal. But before you start thinking about the design elements or effective content, it’s important to consider the website hosting cost.
There are almost 2 billion websites currently live, and they each need a host. Plenty of options exist on the market, which can be overwhelming for many entrepreneurs. This web hosting comparison guide will provide everything you need to know about the importance of choosing the right host, along with the cost breakdowns that will help you make a calculated decision.
What Is Website Hosting?
When looking to create a website, you need to claim your little space on the internet so that people can find your business. Web hosting is the perfect way to achieve it. Experts at One.com define web hosting as “an online service that allows you to publish your website files onto the internet,” which essentially means you will rent the necessary data services and infrastructure to build, manage, and maintain your website.
With thousands of providers to choose from, hosting costs can vary greatly from one company to the next. While it can be tempting to select the cheapest possible solution, web hosting fees can only deliver value for money if the company provides a reliable service. Here’s why:
Websites average no more than three hours of downtime per month. When yours is down due to hosting problems, it’s costing you traffic and sales.
Mobile traffic now contributes to 56% of all traffic. So, only a web hosting service that facilitates both desktop and mobile will suffice.
Conversion rates fall by 4.4% for every extra second your website takes to load between 0 and 5 seconds.
Cybersecurity breaches will probably cost businesses $10.5 billion by 2025, according to predictions. Quality web hosting servers help reduce the risks.
Global eCommerce is worth over $5.5 trillion. The right website with the right web host allows you to tap into this lucrative market.
Low-cost website hosting remains a popular choice, particularly for new local startups. However, the fact that a strong website can generate online sales and indirectly boost offline sales (81% of people now do their online research before visiting a local store) in the process means that even high website hosting fees are a worthwhile investment.
It should also be noted that migrating to another host can cost around $400 while also creating extra hassle. Ideally, you’ll want to make the right choice at the outset.
Navigating the Minefield of Business Website Hosting Costs
There are over 330,000 web host providers worldwide, and the majority will offer a range of services and packages. The different tiers of service may include variables such as:
The number of websites you can host under one package
Whether the package includes email mailboxes and the domain hosting cost
How many databases are included in the package
How much digital file storage is available
The amount of bandwidth
When choosing a web host, you will also want to consider other features like whether you want a simple WordPress website installer or a different type of website builder. Likewise, many web hosts will offer SSL certificates, eCommerce tools, and added items. Sometimes these will be included as standard, while others have them as add-ons.
Generally speaking, though, when you look to compare web hosting packages, they fall into five categories.
When running a price comparison for different hosting services, shared hosting is seen as the gateway option. As it’s the cheapest paid plan, the domain and hosting cost for the first year can be under $100. The low costs make it a popular solution for startups.
As the name suggests, shared hosting is based on the concept of several websites sharing the resources of a web server. In turn, this can make the website a little less robust and reliable. Given the importance of load times, many businesses will subsequently connect a CDN like Google hosting to their site as it’s an affordable way to obtain faster loading speed. The fact that CDNs can be managed according to GB usage also creates added versatility as the website’s requirements grow.
In addition to providing a cost-effective option, shared hosting can be used in conjunction with various website builders, while mailboxes and SSL certificates can be added as well. The website hosting cost will be quite affordable. Some of the most popular providers are:
InMotion - shared hosting plans starting from $2.29 per month for two websites and 100 GB SSD storage with additional plans at $4.99/month and $12.99/month over 36-month contracts.
Bluehost - shared hosting plans starting at $2.95 per month, including the domain hosting price for one year. Further options cost between $5.45/month and $12.95/month over 12 months.
HostGator - shared hosting plans starting from $2.75 per month for one domain and website cost. Additional plans are available at $3.50/month and $5.25/month for unlimited sites.
The hosting fee for shared hosting is the main incentive for choosing this type of plan, but it also offers a streamlined approach that allows you to use a simple website builder to get your site online and accessible to your customers in no time.
VPS hosting, or virtual private server hosting, is essentially the same as shared hosting in that your website will share resources with several other websites. However, there are fewer sites connected to the server, while you have a private virtual server that makes it seem as though you have a dedicated server for your site.
The average VPS hosting plan will cost more than shared hosting and deliver a better service. Most notably, your site is not likely to be hit by temporary 404 messages and downtime while loading speeds are quicker too. Considering the fact that 88% of consumers won’t return to a website after a subpar experience, the benefits of VPS hosting often justify the slightly higher web host rate.
VPS hosting can be seen as a midway point between shared and dedicated hosting plans, offering some of the benefits of both. We’ve produced a guide to the best VPS hosting solutions, also presenting some of the best ones below:
Hostinger - VPS hosting starts at $3.95 per month including a dedicated IP, 1 GB RAM, and 1 TB bandwidth. Eight plans are available, with the most expensive being $77.99/month for 16 GB RAM and 12 TB bandwidth.
Kamatera - VPS hosting starts at $4 per month for 5 TB traffic and includes a free 30-day trial. In addition to standard plans at several tiers, a fully customized plan can be designed to meet your exact needs.
LiquidWeb - VPS hosting starts from $25 per month for 2 GB RAM. Additional plans are available for up to 16 GB, while users can also choose a monthly contract if they prefer.
The use of VPS has gained popularity in recent years with the market showing a CAGR of around 17%. For microbusinesses and SMEs, in particular, it is an attractive prospect indeed.
Dedicated hosting is also referred to as dedicated server hosting, and that’s exactly what you get. A dedicated server ensures that your site is blessed with fast loading speeds and almost zero uptime disruptions, especially when a reliable web host is selected. The cost of web hosting will be higher in the long run, but it can be worthwhile.
After all, the average online order value in the US is between $100 and $200, depending on the device the shopper uses when making a purchase. Losing sales due to inadequate web functioning as a result of an inferior host or busy shared server is the last thing any business owner wants. Dedicated servers provide full control over resources while you will not be affected by the traffic spikes enjoyed by other websites. You can also ensure that the resources you purchase match the company's needs.
Some of the best options are:
Hostwinds - dedicated server hosting plans starting at $122 per month. Alongside several standard packages, dedicated hosting can be fully customized with extra RAM, server drives, and RAID.
IONOS - dedicated hosting plans starting at $65 per month for dedicated enterprise hardware powered by Intel, Xeon, or AMD processors, as well as API & cloud integration and unlimited traffic.
A2 Hosting - dedicated hosting plans starting from $105.99 per month for unmanaged or $155.99 per month for managed services on 24-month plans. Monthly and annual plans are also available.
Dedicated hosting is an excellent solution as the web hosting cost per year will still only reach four figures for most SMEs. When weighed up against potential revenue benefits, it’s still great value for money.
An increasing number of business owners are now looking at VPS hosting vs. cloud hosting price plans. More than simply a place to store files as you do from your smartphone, cloud servers are a group of servers working simultaneously to ensure that your website is up and running at full speed at all times.
It’s the fastest-growing sector of web hosting services, which is to be expected, taking into account that cloud computing has become increasingly accessible. The website hosting cost will reflect the fact that there are multiple servers working together as a safety net to ensure that your site is live and performing optimally. Therefore, if you can’t afford downtime or need to feel that you have complete control over your website, this is a fantastic solution that is still cheaper than dedicated hosting.
Many of the best web hosting providers now offer cloud-based services, while there are also great deals for new customers as cloud servers are still relatively new. The top cloud hosting options on the market include:
Host Armada - cloud hosting plans start from $2.99 per month with SSL certificates, domain hosting cost, and transfer included. Unlimited sites and 40 GB storage cost $5.39/month.
DreamHost - cloud hosting services starting at $4.50 per month. DreamHost offers monthly and annual contracts, giving the user full control over the hosting services as well as website management.
Cloudways - cloud hosting plans start from $12 per month while also using a pay-as-you-go model that can be adapted to suit your needs and evolve in accord with the requirements of your website.
Even though cloud hosting is in its infancy, it has already helped thousands of small business owners by providing adaptable services. Cloud hosting costs aren’t the lowest on the market, but they are well worth the investment.
WordPress is the world’s most popular content management system by far and is used to power over 40% of all websites. For an easy, user-friendly website builder, WP hosting is the answer. However, you still need a host to provide a space for your site to reside.
The great news is that the average WordPress website hosting cost is quite cheap. Moreover, most of the big host providers deliver easy one-click installations. This means you can start building your business website in a matter of minutes. WordPress hosting is optimized for the platform and can also use shared or dedicated servers depending on the needs of an individual or a business.
Most of the major web hosts offer WordPress hosting a range of monthly and annual plans. Given the popularity of WP, it’s no wonder that some of the best hosts in this area are the biggest companies overall. Favorites include:
GoDaddy - WordPress hosting services starting at $6.99 per month for one website, 30 GB of storage, and up to 25,000 monthly visitors. Bigger plans are also available, while the GoDaddy website hosting cost includes a domain too.
SiteGround - WordPress hosting services priced at $3.99 per month for up to 10 GB of storage and 10,000 monthly visitors. Bigger packages are available and can be part of 12-, 24-, or 36-month plans.
WP Engine - WordPress hosting services starting at $20 per month for up to 25,000 monthly visitors on an annual plan. The web host is dedicated solely to WordPress and it certainly shows in the service.
All of the WordPress hosting plans allow you to build a website using the popular CMS tools and let business owners choose their theme, layout, and plug-ins.
So, What Makes a Great Web Host?
Whichever type of hosting plan you opt for (shared hosting, VPS hosting, or other), it’s imperative that you have 100% confidence in the web host - not least because the value of an efficient website keeps increasing every year.
North America boasts the greatest number of providers and also takes a 27% share in global domain registrations. When choosing a web host service, you should consider the following aspects to make the right decision:
Does the web host provide the type (cloud, VPS, etc.) of web hosting that you want?
Are multiple plans, or even tailored plans, made available by the web hosting company?
Does the web host have a solid track record for solving customer support issues through live chat, VoIP, and other tools?
Will the web host provide additional services (domains, cybersecurity) at a good price?
Can the plans evolve alongside your changing requirements as a business owner without facing penalties?
Ultimately, a great web host is one that provides a professional and reliable service that gives you maximum uptime and peace of mind at a fair price. For most website owners, it is preferential to work with a website host that has operated for several years - although plenty of good newer hosts do exist.
Additional Tips To Bring Down the Cost of Your Web Hosting Services
In the grand scheme of things, a few extra dollars for your web hosting services definitely go a long way. After all, compared to renting a brick-and-mortar store, this overhead is likely to be quite small. Nonetheless, you should still seek value for money (without compromising on quality), not least because the savings can be invested in other parts of the business.
Here are 10 quick tips that will help you keep your website hosting rates to a manageable level:
Opt for a longer hosting plan. A 12, 24, or 36-month plan will offer a significant discount compared to a monthly fee.
Choose the right web host on the first attempt, as switching can cost you a few hundred dollars.
Where possible, bundle domains, email inboxes, and other related services.
But get rid of any services that you won’t use or already have in-house teams for, such as SEO.
If choosing a flexible plan, start with the lowest option right now - at least during the website building phase.
Get smart with optimized images and cache static pages to keep storage requirements down.
Look for free incentives like Google Ads vouchers that can give you extra value for money in the long run.
Speak to the company’s advisor to see what package they can build around your needs, but avoid their upselling strategies.
Know the customer support lines. Calling premium toll numbers could cost you a fortune compared to free web support.
Finally, look online for discount codes or consider waiting for the next big sale like Black Friday or summer sales.
The Final Word on the Cost of Website Hosting
Ultimately, the website hosting cost is merely another expense that doesn’t increase your overall outgoings by a significant amount. With the right host provider behind your brand, it’s one of the most valuable investments you’ll ever make.
Nonetheless, you should seek the best hosting rates to satisfy your immediate requirements while maintaining the flexibility to upscale or evolve as the business grows. Choose the best web hosting for your needs, and the World Wide Web will be your oyster.
By Vladana Donevski ·
Food, glorious food. It’s a source of energy and great joy in our daily lives, but could it also be the source of your future earnings as an entrepreneur? This guide to the best food business ideas will provide all the insight needed to start your own food business in 2022.
Whether looking for profitable food business ideas or inspiration to finalize your small food business model, get ready for the sweet taste of success.
Are Small Food Business Ideas a Recipe for Profits?
Before looking at easy catering ideas, it’s important to confirm that you have chosen the right industry to get into. The fact that everyone needs to eat instantly inspires a sense of optimism when entering this area, and the following statistics provide further confirmation:
In 2021, the global food market generated $8.27 trillion.
American households spend an average of $3,008 per year dining out.
The average profit margin of a restaurant ranges from 3% to 5%.
Food truck businesses can cost $50,000 to start before making $500,000 per year.
The fast-food industry currently shows a CAGR of just over 5%.
The food industry is one of the most versatile sectors of all. There are many ways to manage a business in this field, and there will be endless opportunities regardless of whether you have a hands-on approach to food prep or not. If you have a passion for food and improving lives, the food industry can make those dreams come true.
20 Best Food Business Ideas for 2022 and Beyond
More than 600,000 new businesses are launched in the US each year, including thousands of food businesses. As you’ll see from our list of 20 different food ideas, the umbrella term of “food businesses” can cover a wide range of concepts. Hence, it’s important to explore various options to find the most suitable solution for your business.
Open a franchise
Franchises are a popular choice in several business settings but are particularly effective in the food industry. If you’re starting a food business for the first time, a franchise gives you a chance to leverage success from the existing reputation of the brand. Likewise, the blueprint will guide many aspects, from marketing to menu choices.
McDonald’s, Subway, Dunkin’ Donuts, et al. are all great options. However, you can also find affordable franchises that can be started for under $10,000. Find a franchise that you naturally advocate while also conducting your research into the local market to unlock the best results.
Baby food business
The baby food sector had a market value of $12.9 billion in 2018 and is expected to hit $17.2 billion by 2026.
Aside from the fact that it’s a growing industry, it’s one in which you can make a real difference. Food plays a key role in an infant’s physical and mental development, and families are more conscious about their food choices than ever before. That’s why developing a baby food brand focused on organic and natural ingredients can be a very lucrative business model. Besides, the knowledge that you’re supporting new generations is hugely rewarding, not least if you’re a parent.
Pet food business
Children aren’t the only family members who deserve great-tasting foods. Pets do, too. If you’re an animal lover yourself, this can be one of the most productive home-based food business ideas. Over 90 million families in the US have pets, and many are frustrated by the lack of quality foods on offer. You can change that with your food company.
In addition to formulating standard pet foods with new tastes and quality ingredients, you can look to introduce treats. Dog-friendly ice lollies are great for summer treats, while pet-friendly cakes and themed food baskets help them stay included in various festivities. The markup potential can be huge.
Fields or farms
Cooking food for diners is one way to gain revenue from the food industry. However, you can also sell your customers an experience of visiting your venue to find produce for themselves. Strawberry fields, pumpkin farms, and organic farms are just some examples.
Only 5.7% of all US food sales are organic despite the growing demand. This is just one of several ways to tap into this market. Combining tours and ingredient picking with merchandise or selling treats that you’ve made using your produce can become one of the most innovative ideas for a food business. You can charge for the entrance and experience, as well as the products themselves.
Food truck business
Food truck business ideas have become very popular in recent times, and the sector continues to grow at a rapid pace. It’s not hard to see why, either, as the mobile elements add versatility while the costs are often lower than having a commercial building in a suitable location. You can also reach multiple locations each day.
There are many factors to consider when launching a food truck business, such as the vehicle requirements, health permits, and logistical factors. Our guide to creative food truck ideas and launching your firm will point you in the right direction. Perhaps the most important factor, however, is to develop a delicious menu. Great food will keep people coming back for more.
Food delivery business
If traveling in a food truck to create delicious foods isn’t your bag, you could also consider delivering foods on behalf of companies. The digital revolution has changed the takeout food and grocery food delivery landscape forever. Food delivery apps are set to hit $329 billion by 2029, and you don’t have to challenge the big guns to join the party.
You can serve as the bridge between consumers and restaurants or work on behalf of several local food businesses that don’t have in-house delivery teams. Either way, your company will pick up foods from eateries or grocery stores before safely and efficiently delivering the packages to their destination.
Events catering business
Food plays a significant role in many special events. Weddings, birthdays, anniversaries, graduation parties, bar mitzvahs, christenings, funeral wakes, and business events are just some of the occasions where food will be required.
One of the great things about the catering industry is that there is not one company with a share of 5% or more. This means that even startups and small businesses can compete. Whether it’s themed dishes or not, producing quality foods should lead to referrals from clients and guests.
When looking for food business ideas with small capital, you might consider cooking classes as a great way to monetize your passion and culinary skills. When offering private tuition, you can operate from home or visit the student directly. If you want to run group classes, you simply need to hire a suitable space, which could even include a school’s kitchen.
Many people are turning to cooking classes as a productive way to socialize and develop new skills. A global CAGR of 18.9% shows that the industry is blessed with stunning opportunities. Teaching families how to cook healthier foods from scratch or enjoy the rewards of hosting a dinner party is simply amazing.
Food kiosks are an essential feature of the contemporary food industry. Whether you’ll go for food cart business ideas, pop-up kiosks, or permanent structures in a mall is up to you. Either way, you’ll get the possibility to serve baked goods like cookies, savory treats, or specialty meals.
This sector is worth over $10 billion annually despite the impacts of the pandemic. It is also one of the areas where you can easily find a short-term rental agreement, which can reduce the risks when starting your business. Portable kiosks will allow you to work in multiple venues until you find the best.
Meal prep business
Most people who have the facilities to source ingredients and cook their own meals take it for granted. However, a lack of cooking equipment and/or mobility issues cause daily struggles for millions of people. Meal prep companies can provide “meals on wheels” or deliver meals in Tupperware so that consumers have access to nutritious foods.
Often thought of as a service to support elderly or disabled consumers, meal prep businesses can actually support people from many demographics. Meal kits have become very popular with families who are bereft of time or want to cut down on their food waste. Your food prep and delivery service can yield big ROIs.
Fitness food prep business
Away from standard meal preps, fitness food prep ventures are great examples of food business ideas from home. In fact, 17% of consumers (and 25% in cities) have tried meal kits at some stage. While they aren’t all fitness-related, this is a growing sector within the industry as many fitness enthusiasts adopt eating plans that include calorie counting.
A fitness food prep venture can work in several ways. It can be one of the best online food business ideas for creating a health brand that sells directly to consumers. Alternatively, it can focus on teaming up with local personal trainers or fitness clubs. Or you can use a combination of the two to boost your revenue.
When thinking about foods, it’s important to remember drinks too. Brewing (and testing) beer for a living or side hustle sounds like heaven for a lot of people. It’s also one that you’ve probably talked about with friends in the past and have a few food business name ideas up your sleeve for.
Like many industries, the craft beer industry faced its toughest time during the pandemic but has now come out the other side. Small business owners can now make profitable ventures that sell alcohol to consumers or as part of the supply chain for bars. As well as beers, you could consider making wines.
The importance of food on special occasions has already been mentioned. However, many events also require the pièce de résistance. Starting a cake business can be the perfect way to be involved in their big days. From weddings to birthdays, unique cakes sell for big money but offer excellent value for customers.
Apart from single large cakes, you can also bake themed cupcakes for Valentine’s, Easter, and other occasions. This is a great option if you’re looking for food to sell from home.
Dietary food business
Studies show that 18 million Americans are gluten sensitive, and that figure continues to rise. Many people struggle with ingredients, recipes, and special meals. This is especially true when they are recently diagnosed. It has subsequently created myriad opportunities for entrepreneurs to help.
The ability to deliver great-tasting foods that don’t cause stomach sensitivity is a wonderful thing. The industry is growing, but there is still only a small level of competition considering the potential audience size. As well as gluten, you can look at dairy-free, vegetarian, or vegan meals.
Heading back to the beverages arena, mobile bartending is another popular option. You can additionally serve the most profitable bar food solutions to deliver a comprehensive package. Even if you don’t do this, serving cocktails and other alcoholic drinks can brighten up many parties and special occasions.
You may get hired for garden parties and other gatherings. More commonly, though, you can work weddings and other celebrations where the venue doesn’t have a license. Get your liquor license, and you can work directly with the clients and party organizers or with the venues.
We all love great-tasting foods, but those foods are nowhere near as important to our health as water. There are thousands of water brands out there, and anyone who has tried more than a few will know that the contrasts in taste can be huge. Even if you don’t have access to a natural source of mineral water, there are options.
You can add a touch of flavor to water or carbonate them. If selling mineral water was cool enough for rapper 50 Cent to earn a fortune, you shouldn’t overlook the arena. The fact that everyone needs to drink gallons of water every week also makes it an incredibly stable environment for brands that make it.
Condiments have a huge impact on the overall taste of a meal. Sauces are one area where families simply don’t have the time to cook from scratch. Therefore, premade sauces can be a crucial addition to the pantry that turns a two-hour recipe into a 20-minute one. The industry is, unsurprisingly, performing better than ever.
Sauces can range from pasta sauces to curry sauces or condiments for the side of a dish. Sauce-makers can find that they have easy food to sell to make money in large quantities. Many brands will bring out a range of various products, building a large and loyal following in no time.
Gourmet candy business
Gourmet candy can be a great pick-me-up for consumers. Likewise, it can be the perfect gift to say congratulations on a new job or share a message of love. Mass-produced sweets are OK for every day, but the special treats are something millions of people are prepared to pay for.
Both chocolate (5.9%) and nonchocolate (6.9%) variants have seen healthy growth during the pandemic. There has arguably never been a better time to embrace it as online food business ideas are generally performing well thanks to the growth of eCommerce. You can make treats from home or in a small commercial setting.
Cooking content creator
If you love cooking but don’t want to cook for others, content creation is one of the best food business from home ideas available. It’s affordable, puts you in full control, and allows you to work around another job until the time is right to go full-time. As far as food business ideas with low investment go, it is ideal.
Better still, you can afford to make mistakes when making prerecorded content. It could be a video series teaching people to cook, a podcast, a blog, or any other form of content. There are many ways to monetize online content in 2022. So, as long as you’re consistent with publishing new content, it can be a smooth path ahead.
It may be the most obvious food business idea of all. However, there is no question that restaurants can be hugely successful. People are eager to enjoy life after the endemic, and restaurant meals are a tried-and-true choice.
A successful restaurant will rely on several key factors. You’ll need great chefs, a convenient location, and a winning menu. When you combine these things with a strong marketing strategy, you can achieve great things. Going forward, you could turn it into a franchise for even greater opportunities.
Some Quick Tips for Running Your Food Business
Whichever route you take, it’s imperative that your food business ideas are supported by a winning model. Writing a business plan and funding the venture will be crucial - as is the case with any company.
Additionally, here are six quick tips to help you find your way to success:
Embrace modern tech. For example, self-order kiosks are now used by 25% of the market. Your business may need them, along with POS terminals.
Appreciate the importance of delivery software as consumers demand their food in good time and won’t come back if you disappoint.
Think carefully about food business name ideas as this will set the foundation for building a great brand.
Always hire the right people for your food business ideas because there is only so much you can do with one pair of hands.
Adapt. For example, 30% of fast-food restaurants now offer healthy options for kids. You can’t be stuck in the past.
Know your market and competitors. Opening the wrong type of business due to a lack of demand or space within the arena is one of the most common reasons small businesses fail.
The Final Word on Food Business Ideas
By now, you should have a good grasp of the available online food business ideas, food business from home ideas, and profitable small food business concepts. Likewise, you should know the answers to questions like “Are food trucks profitable?” and “What foods can I sell from home?”
You have the ingredients for success. Now is the time to turn them into a dish that secures your future.
By Damjan Jugovic Spajic ·
The phrase “licensed, bonded, and insured” is omnipresent in some industries. You’ll find it in the company's tagline, marketing media, and client contracts. Far from being just an advertisement strategy, being “licensed, bonded, and insured” carries a lot of meaning. And, for some companies, getting relevant licenses, insurance, and surety bonds is a legal requirement.
But, while being insured and licensed is standard practice for many companies, not many first-time business owners are familiar with the third term. So what does bonded mean?
For most customers, ensuring that the business or contractor they hire fulfills all legal requirements is essential - and a significant factor in their decision-making process. Let’s look at the different terms and why your company needs to be bonded, licensed, and insured.
Licensed, Bonded & Insured – Let’s Start With the Basics
The phrase “licensed, bonded & insured” has been conceptualized as a quick way to let clients, contractors, and suppliers know that a business meets all industry-specific legal requirements.
Each of the terms in this phrase carries a lot of meaning, and using it as part of your tagline is not something to be taken lightly. But what do the different terms mean? Let’s start with “licensed and insured.”
Licensed means that business owners, employees, and managers have the necessary competencies and skills to carry out niche-specific tasks efficiently and safely. These competencies are assessed through standardized tests and certifications that need to be acquired.
Licenses are industry-specific, and the more technical a business is, the more licenses it will require to protect clients, employees, and suppliers. In customers' eyes, a licensed company has taken all the necessary steps to protect the public’s health and safety and can guarantee high work standards.
Insured shows that your company has acquired the necessary insurance to cover consumers and the company itself in the case of losses, accidents, or injuries. If a business is advertised as licensed, it has purchased insurance covers such as general liability and workers' compensation.
Pro tip - It’s helpful to acknowledge that each business is unique and, depending on the industry and niche you operate in, you will need to purchase different insurance policies. Because of the complexity of this step, partnering with small business insurance providers can help.
So, now that you are clear on what “insured” and “licensed” mean, let’s look at the third term: what does it mean when a company is bonded?
What Does Bonded Mean?
If your business is licensed and insured, you are now probably wondering whether it also needs to be bonded.
In business, “bonded” means that a company has purchased a surety bond. A surety bond is a financial instrument that allows a business to protect another party, such as a client or customer.
If the business fails to deliver the expected results, fails to comply with industry requirements, or doesn’t fulfill its obligation, the surety bond provides compensation to the customer.
Each surety bond provides a certain amount of coverage. The bond cost is a percentage of this amount, usually varying between 1-15%. If your business wishes to purchase a premium (bond amount or bond limit) of up to $20,000, you will need to pay between $200 and $3,000, depending on your bonds’ underwriting provider.
The amount you’ll need for your company - and the rates you’ll be able to secure - will depend on your industry, niche, application specifics, and credit health.
Surety Bond Definition
Now that you know what to expect from a surety bond let’s look at the technical definition of this financial product.
A surety bond is an agreement or contract between three parties: the surety, the principal, and the obligee. This legal document is designed to guarantee that the obligations of a business owner (or principal) are fulfilled. It transfers the risk from the business owner to a third party (the surety provider or the government).
While there are different types of bonds, a bonded company is always preferable to customers, who will receive compensation even if the business fails to meet its obligations.
How Do Bonds Work?
When a company purchases a surety bond, it becomes liable for any obligations that are not fulfilled and guarantees the client that they will be able to receive third-party compensation. But how do these contracts work?
Firstly, there are three parties involved in the agreement:
The principal is a surety bond’s principal, the entity buying the bond. A principal might be a person or business.
The obligee is the entity (person or business) that might need to be protected by the bond.
The surety is the bond contract provider, which is paid by the principal and responsible for producing compensation to the obligee if the principal doesn’t meet obligations.
It’s worth noting that the principal will be required to reimburse any payment (penal sum) made by the surety.
Being Bonded vs. Insured: What Are the Differences?
Business bonding and insurance are commonly confused. After all, both protect a third party and the company itself. But some radical differences set them apart. Here are the main three to simplify these concepts:
The number of parties involved - insurance policies are agreed upon by two main parties: the insured (the company or business owner) and the insurer (the insurance policy provider). On the other hand, surety bonds involve three parties, and each contract will need to be crafted depending on unique circumstances.
Bonds serve a different purpose - the main difference between an insurance policy and a bond is that an insurance policy is designed to protect the policyholder. In contrast, the bond protects the third-party obligee, the bond holder’s client.
Bonds need to be reimbursed by the bondholder - when an insurance claim is filed, the insurer covers the liability. In the case of surety bonds, the holder needs to refund the payments made.
Unpreventable accidents or injuries might lead to insurance claims filing. Oppositely, surety bonds claims might indicate that the holder has carried out improper business practices that have led to financial losses for their clientele. That is why companies purchasing surety bonds will want to avoid any claim that might affect their reputation.
What Companies Need To Be Bonded?
While surety bonds are not needed for all industries or businesses, some companies can’t start operating without this added layer of legal and financial protection. Just a few of the niches that require surety bonds are:
Contractors and construction companies
Medical equipment providers
Purchasing a bond means that your clientele is protected in the case of unethical or improper business practices. Therefore, businesses operating in other industries - such as painting or plumbing companies - might provide consumer protection through a bond, representing a competitive advantage.
Types of Surety Bonds
While there is a range of bonds your business might need, most surety bonds fall into the following categories:
Construction Bonds - construction bonds are explicitly designed to protect clients and contractors in the construction industry. Some of the most popular construction bonds are bid bonds, payment bonds, and performance bonds. They cover a client against failed obligations, missed payments, and performance shortfalls during the bidding process.
Fidelity Bonds - fidelity bonds are designed to protect a business from employee misconduct or criminal acts, including dishonesty and theft.
Commercial Bonds - commercial bonds include license, permit bonds, and bail bonds. Governmental and state agencies require the first to ensure that the business will carry out tasks per governmental regulations. The second is designed to help defendants leave jail during a criminal or civil case.
Surety bonds requirements vary from state to state and from one industry to another. Make sure to check the laws applicable in your area.
Cost of Getting Bonded
As we have seen above, the cost of getting a surety bond will be calculated as a percentage of the premium required. This percentage can vary but usually falls in the 1-15% bracket.
However, the cost of surety bonds is also influenced by many factors. These include:
The type of bond - Some bonds, such as license and permit bonds, are straightforward and benefit from fixed prices. Others, such as fidelity and court bonds, can be more expensive and even require collaterals worth 100-110% of the bond amount.
Underwriting requirements - if you are after an instant issue bond, you won’t need to undergo any credit check and pay a fixed rate. However, options such as credit-based bonds can give you access to better rates. Still, they involve underwriting (or the process of assessing the risk and premium of the bond) and are subject to your creditworthiness.
Your financial history - most surety companies won’t want to run any risk when granting you a bond. In the case of credit-based bonds, they will review your financial history and offer you relevant terms. If the applicant has good credit, the bond’s cost will be 0.5-5% of the bond amount, but someone with poor credit might need to pay between 5% and 20% of the bond amount.
The length and specifics of the surety bond might also influence the contract’s price.
By Vladana Donevski ·