If you run a small business as a contractor or offer something service-related, there are several ways to protect your business from risk, liability, and financial loss. And, in all likelihood, clients are more attracted to companies that take the proper precautions by carrying the right coverage.

Today, the best businesses shield their clients, employees, third parties, and themselves in three primary ways: licensing, insurance, and the purchase of bonds.

Below, we’ll discuss how these three interact as well as what it means to be bonded. Keep reading to discover more.

Licensed and bonded and insured (oh my)

You’ve likely heard the phrase that a business is “licensed, bonded, and insured,” but what does that mean? Because the terms tend to go hand in hand, it’s easy to confuse one for the other. It’s worth noting that being bonded and being insured aren’t the same thing, despite the fact that they both act as defensive measures.

Before we dive into the details, it’s important to define and distinguish these three categories:


A business license is a legal document that gives you the right to run and operate a business in your city. The state you live and work in may have different rules and regulations for your business. Certain states require that you apply and pay for a state-certified license, which (according to the state) demonstrates that you have the necessary skills, training, and knowledge to perform your job.

Often, the licensing process can be quite an onerous burden. Many businesses complain that it stifles competition in the market by preventing — or at least making it incredibly difficult — for new businesses to join.

With this in mind, it’s important that you check with your state and confirm that you have all the required licensing in order to legally operate your business. Failure to do so could result in steep fines or force your entire business to shutter.

Examples of professions that may require licensing include:

  • Hairdressers
  • Estheticians
  • Attorneys
  • Accountants
  • Contractors
  • Real estate agents


Bonds are purchased as a safety measure that can help a business guarantee its work and is meant to address a variety of potential claims that a client could level at them, including:

  • Incomplete work
  • Unsatisfactory work
  • Failure to comply with laws and regulations
  • Accusations of theft and/or fraud
  • Employee misconduct

It’s important to note that insurance covers the business while bonding protects the business’ customers. Should something go wrong during the course of work, the customer is able to file a claim against the business, and the purchased bond can then provide for the cost of a valid claim.

Being bonded demonstrates to customers that the business has taken reasonable actions to ensure that the work will be completed as agreed upon. Otherwise, customers will receive compensation via the bond if the business fails to meet those expectations.


Of the three—licensed, bonded, and insured—insurance is likely the term you’re most familiar with. But for the sake of review: insurance protects a business from financial losses incurred at or during work. There are a host of insurance policies that any small business should consider having:

By paying a relatively small figure upfront, these types of plans can protect a business from the various liabilities and risks involved with your industry. In particular, general liability insurance and professional liability insurance can help cover:

Licensing, bonding, and insurance: what does your business need?

The short answer is: it depends. Whether your business needs just licensing and insurance, or all three, depends on the type of business you own and how you perform your work. We’ll help you sort this out with the longer answer below.

Does your business need insurance? This one’s easy: Yes, every business can benefit from business insurance, whether you’re an independent contractor or you manage a small business. When you own your own business, just one error, accident, or litigious client can negatively impact your ability to continue operating. Business insurance protects you from the financial risk associated with third-party claims of property damage, bodily injury, or negligence.

Does your business need a license? It depends. Different states have different licensing requirements for businesses. Typically, licenses are required for businesses that perform more complicated work or need to meet a set of safety standards. This includes many of the professions we outlined above, such as attorneys and estheticians, as well as restaurants and retail stores.

Does your business need to be bonded? It depends. Generally, bonds are required for businesses that work in construction or with government entities. You can review your state laws to determine if your type of business needs to be bonded. However, bonding can be worth considering if you regularly work at your clients’ homes or offices. Think of it this way: insurance protects your business from financial risk, while bonds protect your client. Being both bonded and insured helps build trust with your client.

Types of bonds

In the business world, there are two primary bonds that you should be aware of. They are surety bonds and fidelity bonds.

Surety bonds

Sometimes referred to as a performance bond, this guarantees to the customer that the agreed-upon services will be provided. A surety bond typically lends protection from claims surrounding incomplete or unsatisfactory work, noncompliance with laws and regulations, or illegal actions such as theft or fraud.

It always involves three parties:

  • The Principal – The company or individual that purchases the bond and will be responsible for providing the expected services.
  • The Obligee – The party that needs the bond in order for the business to do its job. Typically, this is a state or local municipality, although there are instances when it could be another company.
  • The Surety – The insurance company that issues the bond.

There are two types of surety bonds: contract and commercial. Let’s break them down.

Contract surety bonds

Contract bonds are commonly purchased by construction businesses. They have their own sub-types, which include:

  • Performance bonds: Performance bonds provide assurance to your client that your business will complete your services, or perform, according to your agreement.
  • Payment bonds: This type of contract bond provides assurance that you will pay your employees, subcontractors, and other vendors on time and in full.
  • Ancillary bonds: This type of bond is often used alongside performance bonds, and assures that all of the contractual requirements will be met.
  • Bid bonds: In situations where multiple companies are bidding for a contract, a bid bond guarantees to the client that you will take on the job if they select your business.

Commercial surety bonds

Businesses that bid on government or municipal work will likely need commercial surety bonds. This type of bond protects the hiring entity from financial losses they may suffer as a result of your business failing to follow any relevant laws or regulations related to the project.

Fidelity bonds

Fidelity bonds are meant to protect policyholders and clients from fraudulent acts, particularly those committed by employees such as theft, misconduct, and fraud.

It’s often considered a supplement to business insurance and can be split into two categories:

  • First-Party Fidelity Bonds – Pays for damages caused by an employee stealing or defrauding the company they work for. It covers the business but not its clients.
  • Third-Party Fidelity Bonds – Similarly, this covers the same damages discussed previously, but on behalf of the client.

Fidelity bonds are commonly utilized within the IT industry. Third-party fidelity bonds are important client safeguards as IT employees may have unrestricted access to a business’ proprietary information & customer data.

How to become bonded

If your state or local municipality requires it, or you regularly work in a client’s home or on another business’ premises, it would be wise to become bonded and thus protect your business and your customers.

But how do you become bonded? Don’t worry, the process is straightforward.

First, you’ll have to decide on the type of bond. Costs vary depending upon your profession and the type of bond you seek.

The next step is to consult with your licensed insurance agent for their recommendation of a reputable bond provider.

From there, you and your agent will work together to select and purchase the right bond for your business.

How much does it cost to become bonded, licensed, and insured?

The total cost you can expect to pay to become bonded, licensed, and insured depends on a number of things, including the state in which you operate, the size of your business, and the amount of risk associated with your business.

For example, business licenses may cost around fifty or a few hundred dollars, depending on the type of business and your state.

The cost to become insured will depend on how many policies you purchase, the size of your crew, the value of your insured equipment or property, the coverage limit you select, your state of operation, and the risk associated with your industry. For example, general liability insurance costs around $42 per month, on average, while professional liability insurance can cost around $45 per month.

When estimating the cost of a bond, you can think of them similar to a loan. The amount you’ll pay will depend on your business credit score and financials, and could be between 1% to 20% of the bond amount.

Get licensed, bonded and insured

Do you need liability insurance for your business? If so, you’re in luck. Thimble is a new, more flexible type of insurance. When you need insurance, you pay for it; when you don’t, you save.

With Thimble, you can purchase a liability policy by the job, month, or year—it works when you do. Your affordable plan can be tailored to your specific needs, timeline, and desired coverage limits.

In a rush and need proof of insurance?

Just visit the Thimble app, enter your details, receive a free quote, and then select your plan. In under 60 seconds, you can have your Certificate of Insurance
ready to go.

Don’t leave your small business exposed. Instead, get covered with Thimble’s help.