Your Contractor License Bond Guide

There are a number of agencies and law firms instituted to issue contractor license bonds in every State of America. It doesn’t matter in what State you practice construction, whether in California, New Jersey, Ohio, Washington D.C etc., you can be bonded.

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Image: https://www.contractorbond.org/

Contractor license bonds are a form of surety bonds that provide insurance cover for contractors.  The more knowledge professionals acquire about contractor bonds the better prepared they are to buy or renew their contractor licenses. In light of this, we have developed this guide to walk you through what contractor bonding is.

Contractor Bonds by State

To become a licensed contractor in any state, you require contractor license bonds to operate. Because of varying policies and implementations from each state, the cost and requirements of contractor bonds will vary. Depending on where the construction project will take place you may need to contact local law firms for proper guidance.

Contractor License Bonds – What are they?

Contractor license bonds provide legal coverage for clients should a contractor fail to deliver on the agreements reached before the project was awarded. As a contractor, you need these legal bonds to obtain a license, without which you might be limited from carrying out construction projects.  Should you fail to deliver on the project, the client has every right to sue for damages or make claims that you will be liable to pay.

For example, if you carry out home renovations for one of your client’s apartments and you are unable to complete the project, a claim can be filed against you or your company. It’s absolutely imperative that you understand what surety bonds are and make provisions to get contractor licenses as soon as possible.

Here are some types of Contractor License Bonds

Contractor license bonds are required before you carry out construction work in states. Requirements can even vary by the municipality within states, so get to know the type of contractor bond you need to get started on construction projects.  The most common type of contractor bonds are:

  1. Plumbing contractor license bonds.
  2. General contractor license bonds.
  3. Local or municipal contractor license bonds.
  4. Electrical contractor license bonds.
  5. State contractor license bonds.

We are capable of handling all bonds and issue out a $15,000 California contractor bond

Step-by-Step Guide to obtaining a Contractor License Bond

  1. Start by evaluating what you need in a license bond

If you have to operate your business legally in any state, you need the license permit of those states. You might need to do a background search to discover the requirements from each state and tailor them to your own requirements.  A background search will reveal different contractor bond requirements by each state before you can get a license to operate there. Some need you to secure a local contractor license while others don’t.

Some states require that you process multiple surety bonds with clients, depending on the type of work you carry out within their locality.  If you are performing multiple jobs like electrical fittings and general contracting work, you may need to file for two separate surety bonds.

It’s best if you speak to an attorney specialized in contractor bonds to explain things to you if you are not sure what you need.

  1. Get the right approval

Once you have examined the bonding requirements of the state in which you’d like to carry out construction work, the next stage in the process is getting approval for a contractor license.  You will have to apply online with the help of a professional to get instant approval

  1. Submit your bonds to the state

The moment contractor bonds have been issued to you, make sure that you submit it on time. You have to:

  • Sign your own column of the bond.
  • Make personal copies for reference purposes.
  • Sign the signed copy to the state along with all other paper requirement needed to process the bond.

As soon as the state receives your bond, they will send you the original copy of your contractor license that legally authorizes you to carry out construction projects..

What will it cost to obtain a Contractor license bond?

The calculation of bond cost varies and is usually affected by personal credit. There are premium bond calculator tools online that help determine prices.

What does this bond cover?

The contractor is responsible for paying the full bond claim, which can be as high as the bond amount or a fraction of it. Processing surety requires that you sign an indemnity agreement that pledges your corporation in case a bond claim is filed against you.  You may need to understand how bond claims work to fully appreciate this concept.

Make sure your bond agent takes out time to explain to you the risks involved and how to avoid them before you undergo the process.  If an agency fails to properly explain the risk to you, it’s best if you find another.

How to save money on license bonds?

The bond agency you operate with is the first line of defense should a claim be filed against you. The best way to avoid bond claims is to operate your business properly and ethically. Do not cut corners and make sure you deliver what your client expected.

Remember that you are liable for bond claims when you are at fault.

Getting a Contractor bond license with bad credit

It’s hard to get a contractor bond license with bad credit, but it can be done. Most agencies turn down applications if the contractor has a bad credit history. When calculating your bond cost, your credit score is a major factor.

Agencies check out your credit history and credit score when determining your ability to pay should a claim be made against you.

However, regarding contractors with bad credit, Contractobond.org makes the following comment:

“With the downturn in the construction industry over recent years, many contractors ended up with poor credit as a result. We recognize your unique needs and offer programs that enable us to accept 99% of candidates, regardless of your credit rating.”

Contractors commonly confuse surety bonds with insurance. They are not the same. With a surety bond, the contractor must pay the surety company if there is a claim. An insurance company, when there is a claim, does not expect the policyholder to pay in full.

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