Why Startups and Small Businesses Need Contractual Credit Protection
Most startups and small businesses miss out on getting contracts with corporations and governmental agencies because of no form of credit and legal protection. Such protection is available for bidding, performance, payment, and warranty if you are a service provider. Even if entrepreneurs aren’t seeking contractual agreements, it is a great benefit for companies in long-term growth.
Industries and companies such as warehouses, health clubs, collection agencies, and construction enterprises must have a form of credit and legal protection. A surety bond or credit protection is “a promise to pay one party a specified amount if a second party fulfills the terms of a contract,” based on Wikipedia’s definition. It is a requirement and provides full protection in honoring contractors’ work and financial obligations.
Forms of Contract Protection
Bid protection is an assurance to the owner if a contractor receives an award to honor a contract and neglects to fulfill or sign it. The bidder must complete obligations included in the agreement to receive full payment. Bid protection provides security to all parties involved including the principle or bidder, recipient of obligation, and the protection provider. The protection provider of any type of surety bonds glendale az, for an example assures the recipient that the principle can perform all obligated duties.
Payment protection guarantees subcontractors and suppliers receive payments for completing their obligations in a contract. This includes all labor, materials, and miscellaneous expenses. Under the guarantee, the principle receives protection if the recipient doesn’t commit to financial obligations.
Warranty protection is a guarantee provided by the principle to repair damages or malfunctions within a specific time period. If the recipient cannot pay for the repairs, the warranty protection will cover it. Construction companies need to provide warranties to recipients to guarantee quality of services.
Performance protection ensures small businesses and entrepreneurs complete contracts of the principles. If a company or individual does not fulfill all the obligations under an agreement, performance protection will cover all completion expenses. The breach of contract can be non-fulfillment by default or omission.
The one tool most startups and small businesses leave out when launching businesses is contractual credit protection. Some entrepreneurs never think about getting credit & legal protection until placing a bid to win a contract. It is a requirement in jurisdictions in the United States by some corporations and governmental agencies looking for contractors and subcontractors. The Small Business Administration or SBA offers different forms of credit contract protections to small businesses comprising ancillary, bid, payment, and performance.
SBA like other credit protection providers require applicants to meet certain criteria. A few of the requirements are meeting company’s size-standards and having a corporate contract up to $6.5 million or a federal contract up to $10 million. Credit is an important criteria small business must meet to get a credit protection coverage and the cost to obtain it may be higher for startups. The optional protections for a contract include bid, performance, payment, and warranty. Options for commercial include license, probate, permit, and miscellaneous.