Contractor License Bonds Process: Three Step Guide
#1: Determine Your Requirements
Most states will require you to get contractor license bonding to operate your business legally. If you’re just beginning your research, select your state from the map below to determine your requirements (the California contractor’s license bond is one of the most commonly needed).
If you need to get bonded for a public job, you will need a contract bond, which is a different bond type.
It’s possible that you’ll see several different bond requirements, as some cities or towns will require a local contractor license bond to operate legally in addition to the state contractor license bond that’s required for your license. There can also be multiple surety bond requirements depending on the type of work you want to perform (for example, you may need two separate surety bonds to perform electrical contracting work and general contracting work). If you have any doubts about which bond you need, it is best to contact a bond professional.
If you need help with getting your license, you can check out our online contractor license guide.
#2: Get Approved for Your Bond
Once you know which bond you need for your business, your next step is to apply online and get instantly approved.
#3: Sign and Submit Your Bond to the State
After your contractor license bond is delivered to you, you must:
- Sign your bond
- Make a copy for your records
- Send the signed bond to the state (along with any other important paperwork provided by the state or bond agency)
Once the state receives your bond, they should contact you and send your contractor license. Depending on your state, this process can take anywhere from one to three weeks.
What is a Contractor's License Bond?
Simply put, it’s a guarantee that protects your clients and is needed to get your contractor license. If you break the rules, claims can be made against your bond which you’re responsible to pay. For example, if you perform defective work on one of your customer’s homes and don’t correct it, a claim can be filed. Learn more about how surety bonds work and how not having a full understanding can put your business at risk.
If you're looking for bonds needed for public jobs, please take a look at our contract bond guide.
What Do Contractor’s License Bonds Cost?
Pricing is a percentage of the bond amount required of you, which is based on personal credit. Read our guide to learn more about how your bond costs are calculated, or use our bond premium calculator tool to get an instant estimate.
Getting Contractor Bonds for Jobs
If you want to perform work on public jobs you'll need to get contractor bonds such as bid and performance bonds; you can learn more about these bonds and how to obtain them by visiting our contractor bond guide.
Bond Claims Can Put Your Business at Risk
You’re responsible to pay bond claims in full which can be as large as the full bond amount (including legal costs). The indemnity agreement you must sign to get your bond is a legal contract that pledges your corporate and personal assets in the event of bond claims. Watch our video for an easy to understand explanation of how bond claims work. Unfortunately, most bond agents won’t take the time to explain how claims can put you at risk and how to avoid them; if this happens when working with a bond agency it should be a big red flag to reconsider doing business with them.
Save Money on Contractor’s License Bond Claims
Your bond agency should be your first line of defense against bond claims. In order to avoid bond claims, make sure you operate your contracting business ethically, while following the rules of your bond. Remember, you are responsible to pay for any bond claims that you cause. Find out how our company can save you money on claims. If you need help understanding exactly what your bond guarantees you will and will not do, please contact a bond professional.
Getting Your Contractor License Bond with Bad Credit
It’s possible to get a bonded with bad credit, but not all bond agencies will approve you. Your personal credit is the main thing that is considered when you apply for your bond; it’s used to get an idea of your likelihood of triggering bond claims and your ability to pay them. Items such as collections, tax liens or unpaid child support on your credit report will cast your business in a bad light, and often leads to getting declined for your contractor’s license bond. Unfortunately, even if you get approved for a bond with bad credit, your costs will likely be higher. Use our free bond premium estimate tool to find out what your bond will cost.
How Contractor License Bonds Benefit You and Your Clients
Your surety bond protects the public; in other words it protects your clients. If you don’t fix faulty work or if you break any other rules while working as a contractor, your clients can file claims on your bond. However, your surety bond benefits you as well. The easiest way to understand how your bond benefits you is by seeing how surety bond alternatives affect your business. If you’re interested in insurance to protect your business from employee theft, you’ll want to get fidelity bonds.
You Need More Than Just a Contractor License Bond
Although not required like your contractor license bond, you can use these strategies to protect your contracting business and help it grow for years to come.
5 Benefits of Incorporating Your Business
Protection for your personal assets. If you have unresolved business debts, personal assets such as your equipment or work vehicles cannot be taken as payment.
Instant boost of credibility for your business. When your company name includes “LLC” or “Inc.”, it indicates that your contracting business is a professional one, and can attract new clients and partners.
Other businesses within your state cannot file your exact business name (applies to most states). This prevents another company using a similar name, causing confusion for your clients and weakening your brand.
Tax benefits such as allowing you to write off expenses such as health insurance and life insurance premiums.
Easier access to loans. Banks are more willing to provide lending to incorporated businesses, which can be extremely important if you are a smaller contractor that does not have the cash needed to start your business.
Protect Your Business with Insurance
There are several types of insurance coverages that have their own benefits. Whether you are a large contractor with many employees, or a small contracting business, these types of coverages can benefit you:
- General liability insurance: this is an important type of coverage for contractors, as it can protect you from lawsuits and other financial liabilities that result from accidents, e.g. injuries to customers, employees or vendors.
- Property insurance: provides protection for property damage that results from fire, water and some weather events.
- Installation insurance: covers your client’s property from damages incurred when you are installing equipment.
- Commercial auto coverage: insures your vehicles used for commercial purposes.
If you’re a larger contractor, you may also be interested in these coverages:
- Workers compensation and employers liability: workers compensation helps cover medical costs and lost wages for an employee who gets injured and misses work. Employers liability protects you from being sued for claims arising from workers compensation claims. These coverages are especially needed if your company is incorporated.
- Umbrella insurance : extra protection for your general liability insurance.
- Employment practices liability: protects you from certain employment related claims made by employees. For example, if a manager harasses or discriminates against an employee (or is alleged to have done so), this coverage provides a defense and possibly claim payment on behalf of your business.
- Medical insurance: provides medical benefits for employees participating in your company’s health program.
You’ll want to contact a property and casualty insurance agency that specializes in contractor insurance for additional information and to get your coverages in place. You can also get fidelity bonds, which can protect your clients or your business. A business service fidelity bond will protect your clients from dishonest acts by your employees such as theft. An employee dishonesty fidelity bond guards against your own employee’s dishonest acts such as theft, embezzlement and forgery.
Sharpen Your Skills with Licensing and Training Schools
You’ll likely need a surety bond and a license to start a contractor business since most states require both. Read our step-by-step process to getting a surety bond for your license. Once you have your contractor license bond and insurance in place, you may want to consider getting certifications for your specific field of work. If you’re interested in getting certifications, you will likely have to meet education and work experience requirements, in addition to passing an exam.
Although many contractors get their initial training through hands on experience as an apprentice of licensed and certified contractors, it’s becoming more common for contractors to get formal education in their field, the most common type being a bachelor’s degree. Degree course work will help you increase your skill set and often includes training in construction blueprints, electrical systems, building equipment, structural foundations, building codes, construction legalities and cost calculations.