A car wash bond is considered a type of license and permit bond, because obtaining one is a requirement for getting and keeping a license to do business. It guarantees that the business will operate in accordance with all applicable state laws and industry standards.
In some jurisdictions, one of the things a car wash bond guarantees is that the business will pay its employees their full wages and benefits. In such cases, the bond also functions as a wage and welfare bond.
Who Needs It?
These bonds are not required in every state. If you plan to open a car wash, you’ll need to check the licensing requirements for car washes in your particular state—or ask an agent. Be aware that even if there is no state-level requirement for car wash surety bonds, there may be a local requirement.
How Does It Work?
Every surety bond is a legally binding contract between three parties: an obligee, a principal, and a surety. In the case of a car wash surety bond, the obligee is the state or regulatory agency (on behalf of consumers and employees), the principal is the owner of the car wash, and the surety is the company that underwrites and issues the bond.
The terms and conditions of the bond agreement spell out exactly what the principal is pledging to do. Any violation is grounds for the obligee to file a claim against the bond. The surety will investigate to make sure that any claim is valid before paying it.
Any payment the surety makes to the claimant is essentially an advance to the principal, as the principal is ultimately legally responsible for paying claims. The principal must reimburse the surety for any claim paid.
What Does It Cost?
In some jurisdictions, there is a flat amount required for all car wash bonds. California, for example, has set the required amount at $150,000. In other states and jurisdictions, like New York City, the required amount depends on the number of employees.
Those with good credit may pay an annual premium that is as little as 0.75% to 2.5% of the required bond amount. Strong industry experience and financial strength can get you the best possible rate. Having poor credit doesn’t mean you can’t obtain a bond, but you’ll likely pay a higher premium rate than someone with good credit will.
If you need to obtain a new car wash bond or want to replace one you already have, we’re here to help. Our experienced surety bond professionals will get you the best rate possible on a bond that meets your needs.