Overview of Tennessee Contractor License Bond Requirements
A number of different contractors in the state of Tennessee must obtain a contractor license bond before they can perform work. On a state level, a $10,000 bond is required of home improvement contractors. In certain limited and specific cases, general contractors may also need to post a bond in an amount between $500,000 and $1,000,000.
Various cities also require contractors who perform work in their area to post a bond. These are the city of Johnson, the city of Knoxville, Nashville, Davidson County, Memphis and Shelby County.
Bond amounts in these locations vary between $10,000 and $40,000, depending on the type of work being performed. See the bond cost section for a detailed overview of the types of bonds and their amounts.
Why do contractors need a bond?
The purpose of the contractor license bond is to guarantee that the bonded contractor will perform work in accordance with state and local laws and rules. This also includes complying with the conditions of any contracts that they perform work under.
If a contractor violates a contract, the project owner and any harmed individuals may file a claim against their bond to seek compensation. Compensation may then be extended by the surety for a maximum amount of the full penal sum of the bond.
Learn more about how surety bonds work and what their purpose is from our detailed ‘What is a surety bond' guide!
See the sections below for more about the types of contractor license bonds in Tennessee and their cost!
If you have any questions or concerns you'd like to address with us personally, call us at (866)-450-3412 anytime!
How Much Does it Cost to Get a Contractor License Bond in Tennessee?
Your surety bond premium is determined by the surety that issues the bond. It is equal to a fraction of the full amount of your bond. How much you need to pay exactly to get bonded depends on the following factors.
Factors that determine your bond rate
Your personal credit score is the most important factor that influences your bond cost. A high credit score is considered an indicator of high financial stability and trustworthiness. Applicants with a high score are therefore offered a so-called standard market rate on their bond that ranges between .75% and 5% of the bond amount.
Apart from credit score, sureties will often also want to review the following information about an applicant:
- Personal and business financial statements
- Assets and liquidity
- Industry experience
Want to know how much your bond may cost? See the bond cost table below for various premium ranges.
|Tennessee Contractor License Bond Cost Based on Credit Score|
|Bond type||Bond Amount||Credit Score|
|Above 700||650-699||600-649||Below 599|
|Tennessee home improvement contractors, City of Johnson, city of Knoxville contractors|
|Home improvement, general, electrical, gas, plumbing, home improvement, and others||$10,000||$100-$150||$100-$300||$250-$500||$500-$750|
|Memphis and Shelby County contractors|
|Electrical, mechanical, and plumbing||$25,000||$188-$375||$250-$750||$625-$1,250||$1,250-$1,875|
|Nashville and Davidson County contractors|
|Blasting contractors and building contractors with contracts below $25,000||$10,000||$100-$150||$100-$300||$250-$500||$500-$750|
|Electrical, gas/mechanical, plumbing, and excavation contracts, as well as building contractors with contracts over $25,000||$40,000||$300-$600||$400-$1,000||$1,000-$2,000||$2,000-$3,000|
Can I get bonded with bad credit?
A low credit score will not stop you from getting bonded. However, your bond rate will likely be higher because sureties require additional security when issuing bonds to applicants with lower scores.
Even if you are offered a higher rate initially, you can significantly improve your rate over time by improving your credit score. The higher your score gets, the cheaper it will become to get bonded.
See our Bad Credit Program page to learn more about getting bonded when you have a low score!
How Do Bond Claims Occur?
Contractor license bonds are agreements with specific conditions. For example, these bonds will frequently include the condition that bonded contractors will comply with certain state laws or regulations. They may also include conditions about how work is performed by contractors, as well as guarantees about the quality of work.
If a contractor violates the conditions of their bond agreement, the state or an individual may file a claim against the bond for compensation. The surety that backs the bond will then investigate the issue to determine the validity of the claim, and whether to take action. If the claim is valid, the surety will extend compensation to claimants for as much as the full amount of the bond.
In return, the bonded contractor will need to reimburse the surety. This is a standard condition under every bond agreement. Given the cost and difficulty involved in resolving bond claims, it is best for contractors to avoid giving rise to a claim. By avoiding them, the only cost associated with being bonded is the premium they pay for their bond.
Apply For Your Contractor License Bond!
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For further inquiries about contractor license bonds in Tennessee, call our experts at (866)-450-3412!