If you want to start a business in Michigan and need a business license, you will likely need to get a surety bond.
There are several circumstances where individuals need to get a bond. This Michigan surety bonds guide will examine how surety bonds work, including how much they cost and who needs to get bonded.
Why are surety bonds required in Michigan?
Surety bonds are contractual agreements that serve as a guarantee that the bondholder will meet certain conditions. There are three parties in the agreement:
- The principal: The party required to get the surety bond
- Obligee: The party that sets the surety bond requirement
- Surety: The company that issues the surety bond
The conditions placed upon the bonded party vary based on the nature of the surety bond. Typically, they require the party to comply with state laws and regulations regarding how they conduct business or trade.
How do Michigan surety bonds work?
When the surety issues the bond they agree to provide financial protection to the state and to the general public. If the bondholder violates the terms of the bond agreement, other parties can file a claim against the bond to receive compensation.
If the claim is valid, the surety company will pay the damaged party up to the total value of the bond. The principal will then need to reimburse the surety company for paying the claim. Due to the financial risk of a successful claim, bondholders are motivated to adhere to the agreement.
You can get more details on how bonds work in our comprehensive guide to surety bonds.
How much do surety bonds cost in Michigan?
The bond amount is not the same as the bond cost. The required bond amount represents the maximum amount that the surety is liable to pay if there is a successful claim on the bond.
For example, Michigan auto dealers need to get a $10,000 bond. This amount is the maximum coverage amount that the surety can extend if there is a claim against the bond.
The bond cost is the amount that you actually pay for the bond. This is known as the premium. It is typically only equal to a small percentage of the required bond amount. The cost of the bond is largely impacted by the type of the bond.
Some surety bonds are riskier than others. For higher-risk bonds, the standard premiums can range from 3% to 10%. Lower risk bonds can go for a premium as low as 1% to 3%.
For some bonds, the surety company will issue a standard premium for all applicants. With other bonds, the surety will need to perform more extensive underwriting to determine the premium.
When the surety company underwrites your bond, they will evaluate several factors, most notably your credit score. Higher credit scores lead to lower bond premiums. Such applicants can receive premiums as low as 0.5% – 4% of the total bond amount.
Bad credit may lead to higher premiums but with the right surety bond company, you can still get bonded.
When underwriting your bond, the surety company may review other factors, including:
- Industry experience
- Financial history
- Business stability
What kinds of bonds are required in Michigan?
Michigan surety bonds fall under one of the following categories:
License and permit bonds
The state of Michigan requires license and permit bonds for a variety of professions. If an industry has a bonding requirement, businesses and individuals must post their surety bond before receiving a professional license to operate.
One of the most common types of license and permit bonds is contractor license bonds. These are required by general contractors, residential builders, and other contracting professionals.
Michigan requires court bonds for a variety of legal proceedings. If you want to appeal a court decision or become a minor’s guardian or the fiduciary of an estate, you will need to get a bond.
Michigan requires contract bonds for those seeking to bid or work on construction projects. The bonds are mandated for state, federal, and many private projects.
With the bond, the contractor agrees to comply with the conditions set by the project owner. There are several types of contract bonds.
Payment bonds guarantee that the contractor pays all subcontractors, laborers, and suppliers on time.
With a performance bond, there is a guarantee that the contractor completes all work as required.
Common Michigan surety bonds
Collection agency bond
The required bond amount for Michigan collection agency bonds depends on the number of debts collected during the previous year.
If you are getting the bond for the first time, the required bond amount is $5,000.
A collection agency includes any person representing themselves as an agent or person acting on behalf of an agent.
By getting the bond, collection agencies agree to report accurate records of the accounts that they are collecting on.
Below are some of the criteria to become a registered collection agency in Michigan:
- Have a high school diploma or G.E.D
- Be at least 18 years old
- Possess a minimum of six months of full-time account collection experience
- Have good moral character
In addition to meeting these criteria, you will need to complete the following steps:
- Promise to operate your business fairly and lawfully
- Provide proof of bonding
- Complete the application
- Pay all fees
- Pass a knowledge exam
Mortgage Loan Originator Bond
By posting the bond, originators agree to comply with all the professions of the Michigan Mortgage Loan Originator Licensing Act.
Specifically, the law forbids mortgage professionals from engaging in fraud, deceit, or material misrepresentation of transactions, or failing to disclose all information needed for borrowers.
The required bond amount of the Michigan mortgage loan originator bond is based on the loan volume during the previous year. If you are getting your license and bond for the first time, the required amount is $10,000.
The licensing process for Michigan mortgage professionals is handled using the National Mortgage Licensing System (NMLS). Below are a few of the steps you will need to take to get your license:
- Complete 20 hours of pre-licensing education
- Pay all licensing fees
- Authorize a criminal background check and credit report check
- Answer all disclosure questions
Auto dealer bond
The Michigan Department of Motor Vehicles requires uniform vehicle dealers to get a surety bond before receiving an auto dealer license. The bonds guarantee that the principal will not sell faulty vehicles or engage in any unethical or fraudulent practices. The bonds also ensure that certain dealerships pay any due taxes on time.
The required bond amount for Michigan auto dealer bonds is $10,000.
To get an auto dealer license, you must submit an application to the Department of Motor Vehicles. With the application, you will need to include a variety of supporting documents, including:
- A zoning approval form for all license classifications
- Municipality approval for all classifications
- Copy of business formation documents
Notary publics are commissioned by the Michigan Secretary of State to serve as impartial witnesses. Before receiving a commission, every notary must file a notary surety bond. The bonds ensure that the notary acts ethically and does not commit fraud. The required bond amount for Michigan notary bonds is $10,000.
There is a $10 fee to file your bond at the clerk’s office. Once you do, the county clerk will administer the oath of office and verify that you have completed all parts of the notary application.
After you have completed the local filing requirements, you will need to submit your application to the state online or by mail.
Certificate of Lost Title Bond
The Michigan DMV requires a certificate of title bonds for various situations where you may not have the title for your motor vehicle. The bond needs to have a value equal to twice the value of your vehicle.
Contractor License Bond
In Michigan, some contractors must get a Michigan contractor license bond as part of the licensing process. The bonds protect the state as well as the contractor’s customers and vendors.
Depending on your city and country, you may need to complete additional bonding requirements.
Below are some of the local contractor bonds:
- City of Dearborn Heights – Sidewalk and Curbsetter Bond: Varies
- City of Flint – Sidewalk Builders Bond: $2,000
- City of Roseville – Cement Contractor Bond: $2,000
- City of St. Clair Shores – Asphalt/Concrete/Curb Cutter Bond: $1,000
- City of St. Clair Shores – Marine Contractor Bond: $1,000
- City of Warren – Sidewalk Contractors Bond: $1,500
Freight broker bonds
Freight broker bonds are a national bonding requirement set by the Federal Motor Carrier Safety Administration (FMCSA). They are required for anyone seeking to get a freight broker license.
The bonds ensure that brokers will pay motor carriers and shippers on time. The bonds have a $75,000 required amount.
For more information on getting different licenses and bonds in Michigan, you can check out more of our guides:
Michigan surety bonds frequently asked questions
Most Michigan surety bonds are only valid for a specified period of time. If the bond has an expiration date, you will need to renew the bond to keep it active. Bonds for licenses are also needed to keep the license active.
The process for renewing your license will vary. At the very least, it usually involves paying a renewal fee and submitting a renewal application.
Some Michigan surety bonds can be issued instantly. For others, the surety company will need to review your application. This can typically take a few days. Once your bond is issued, the official documents will be sent via mail.
Get bonded with EZ Surety Bonds
EZ Surety Bonds makes it easy to apply for a surety bond in Michigan. You can get a free quote online today. It takes a few minutes to apply for most surety bond categories. Plus, we work with individuals with all kinds of credit.