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What Is a Contractor's Bond?
Construction contractors are generally required to be registered or licensed with their state or local authorities, and a contractor license bond is often required in the process.
The contractor license bond is a type of surety bond, which, in essence, is an agreement between three parties: the principal (the contractor), the obligee (the entity requiring the bond, usually the state), and the surety (the bond provider). It acts as a guarantee that you will comply with all regulations imposed by your local authorities.
There are other construction bonds such as bid, performance and payment bonds, but they are different from a contractor license bond. The license bond concerns general compliance with the statutes of your license, while the other three types of bonds are posted for work on a specific project. They serve as a guarantee that you will follow your contractual obligations under a specific project, such as completing your work, or paying your subcontractors or suppliers as agreed. You can learn more about the difference between contract bonds and contractor license bonds if you take a look at the infographic at the bottom of the page.
A contractors license bond is like a surety line of credit for your business, providing extra protection for your customers that you will fulfill your work fully and diligently. In order to issue your bond, a surety needs to take a good look at your financials and business, to judge whether you can successfully fulfill your obligations.
If you fail to comply with regulations, causing damage to a party covered by the bond, a claim can be filed. If your actions are proven as unlawful, the surety will cover the immediate costs up to the penal sum of the bond. However, you will have to reimburse it soon after, as per the indemnity agreement that is a part of the bonding process.
Contractor Bond Cost
The cost for your contractor license bond, or the bond premium, is usually between 0.75%-2.5% of the total amount. For example, if you’re required to post a $10,000 contractor license bond, you might pay between $100 and $400.
The percentage will depend on your personal and business status: credit score, financial statements and business experience. If your overall condition is good, you’ll have to pay less.
Additionally, each state and local authority has different requirements regarding the bond amount.
How can you decrease your contractor bond cost?
There are a few effective ways that can help you lower your bond cost:
- Your credit score. The higher it is, the lower you’ll pay.
- Your overall financial status. Showcase strong financial statements and good liquidity.
- Your choice of surety bond provider.
To get a ballpark estimate of your contractor license bond, you can use our surety bond cost calculator on the right side of the page.
If you have more questions on how surety bond costs are determined, feel free check our surety bond cost guide.
Contractor Bonding Companies
With Bryant Surety Bonds, you not only get access to exclusive bonding rates but a lot more. We foster strong relations with numerous A-rated, T-listed contractor bonding companies, which allows us to shop around for the best rate for your particular case. It also means a guarantee that your obligee will always accept your surety bond. This is not always a given, as many bond obligees will not accept a contractor bond unless it is underwritten by a financially strong company with an A rating.
Contractor License Bond with Bad Credit
For many contractors with lower credit score or past bankruptcies, tax liens or court cases, getting bonded can seem like an impossible dream. Many sureties turn down these high-risk applicants.
If you’re in a similar situation, Bryant Surety Bonds’ bad credit program can help you get bonded. We operate this program in order to allow contractors with less-than-perfect credit, or other financial troubles to get bonded and be able to stay in business.
The bond premiums for the high-risk market are a bit higher, in the range of 5%-10%. They are still a great opportunity to get bonded and licensed, which allows you to work and improve your credit score organically.
Get Your Contractor License Bond Today
To start your bonding process today, just apply online to get your free, no-obligations quote, or call us at (866)-450-3412. If you need assistance with your application, our bond experts will be happy to help.
In order to provide you with the best bonding rate, we’ll have to take a look at your personal and financial documents. This way we’ll be able to make an accurate judgment of your overall business status, and give you your exact bond premium.
Bond forms vary across states and municipalities; make sure you get the right one from your local authorities. Once you get the completed bond, we recommend that you make a copy for yourself before submitting it to the relevant authorities.
Contractor Bond Claims: What You Need to Know
As mentioned, you can be facing a claim if you have breached the agreement of your contractor bond. This can involve non-compliance with state or local regulations, using fraudulent business methods, failure to declare and pay your taxes, etc. Bond language and forms vary by location, so you need to be well-aware of the ones requried in your place (or places) of operation.
In the event of a claim, there are several possible courses of action. You can seek an out-of-court settlement, which is usually recommended if you know that you have breached the bond agreement and will lose the claim in court anyway. A settlement will generally be less costly and time-consuming and will not hurt your reputation the way a claim will.
Alternatively, you can try and go to court over the claim. If that is your preferred option, you need to make sure that you have sufficient and well-documented evidence to present. Communication with the claimant should be well-documented too, and at every step of the claim process. Finally, it is advisable that you notify the company that issued your contractor license bond. After you present your case in front of the surety, they can decide to intervene in your favor and offer legal aid in court.
If you lose your court case, your will have to financially compensate the claimant up to the full penal sum of the bond.
Difference Between Contractor License Bonds and Contract Bonds
These two types of bonds are frequently confused, so we created a short infographic to explain the difference.
Select your state to learn more about the specific contractor license bond requirements there.