Many contractors advertise that they are “bonded”, but do you know what it means to be bonded? Most don’t, including the contractors themselves. We will go over what it means when a contractor is bonded, which bonds are needed to become bonded and how to get bonded if you’re a contractor yourself.
What Does It Mean To Be Bonded?
When a contractor states they are bonded, it means they either have a surety bond, fidelity bond or both. Most state or local governments require contractor license surety bonds for contractors to obtain their license, so let’s start with them.
Contractor License Bonds:
Contractor license bonds protect the public, as they guarantee contractors will perform according to their license, and can even guarantee the contractor’s work performance. The bond guarantee varies by the government agency requiring the bond, as each one has their own bond requirements, bond form language and explicit guarantees. If a contractor does not fulfill the guarantee, a claim can be filed on the bond, which they will be responsible to pay. Visit our contractor license bond general information page to learn more about contractor license bonds, or watch our contractor license instructional video below (the tool mentioned in the video can be found here).
It is also possible that a bonded contractor has a fidelity bond, which are very different from surety bonds, and are not a guarantee at all. Fidelity bonds are insurance products that protect against employee dishonesty such as theft, and are generally optional. To learn more about fidelity bonds, watch the fidelity bond video in the playlist above, or visit our fidelity bond insurance catalog.
Lastly, a contractor who wants to be bonded and perform work on public construction jobs needs a surety bond in a different category called contract bonds. Contract bonds, such as bid and performance bonds, guarantee that the contractor’s work will be done according to a contract. Like claims on license bonds, if a contractor does not perform according to the contract, a claim can be filed which they are responsible to pay. Take a look at our contract bond catalog for more information about contract bonds, or watch the contract bond video in the playlist above.
How Do I Get Bonded?
Whether you are a contractor who needs a surety bond or are interested in a fidelity bond, you will need to apply online to get an approval. Thanks to our specialty programs, you can qualify for a contractor license bond even with credit issues. Fidelity bonds on the other hand, are easily obtained since they are not a guarantee, but a form of insurance for you or your clients.
Underwriting standards for contract bonds can be tighter because only larger contractors with strong CPA business financials and experience will be considered with a weak credit history.
Hopefully you have a better understanding of bonding and the process. You can also find out whether you need to get a surety bond or insurance by using our insurance bonding guide. If you have any additional questions, please leave a comment below or contact a bond expert in our office.