A bond is a guarantee from a third party — a surety — that you will do what you agreed. If you do not, the surety pays the customer.
"Licensed, bonded and insured" appears in advertising constantly and most people do not know which is which.
It is not insurance for you
This is the part that surprises people. Insurance protects you. A bond protects the customer, and you repay the surety for anything they pay out.
You are buying the customer's confidence, not your own protection.
The common kinds
Licence bond — required by a regulator to hold a trade licence. Usually small and routine.
Performance bond — guarantees you will complete the job to contract. Common on commercial and public work.
Payment bond — guarantees you will pay your own suppliers and subcontractors, so they cannot pursue the customer or place a lien.
Bid bond — guarantees that if you win a tender, you will actually sign the contract.
Getting bonded
The surety underwrites your business much as a lender would: financial statements, working capital, credit history and track record. Bonding capacity grows as the business demonstrates it can carry larger work.
Which makes bonding capacity a practical ceiling on the size of job you can bid for, and a reason to keep clean books before you need it — see working capital.
Where it appears
Insurance and compliance in your accounts. Premiums are usually a percentage of the contract value rather than a flat annual cost.