Contractor License Bond Guide
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Why do you need a contractor license bond?
You need a bond for your contractor business to protect your clients. 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.
Costs are a percentage of the bond amount that’s required of you, which is based on your personal credit. Use our bond pricing tool to to get a quick ballpark estimate or an exact quote.
Yes. You can apply and get bonded with bad credit. Our agency is the largest writer of bonds in the county, which allows us to approve contractors for bonds when other agencies cannot.
No. Contractor license bonds ensure you will abide by the laws of your state, city or municipality when performing contracting work. Contract bonds guarantee public projects will be completed properly and are a separate bond type. You can learn more about contract surety bonds by visiting the contract bond center.
It depends on who is requiring the bond of you, the local municipality, county or state. Depending on your location, it is possible you may need both a local and state contractor license bond, as contractor license bond requirements can vary drastically. You can select your state to see a full list of contractor license bond requirements.
Each state has its own bonding requirements. Some have stringent rules along with a bond requirement, while others have no contractor license bonding requirements at all. Select your state to see the full list of bond requirements. It's also a good idea to check with your local and state governments to see what requirements you have to fulfill to become a licensed contractor.
No, but they are similar. Both bond types allow you to perform contracting work and guarantee you will follow the terms of your license. However, contractor license payment & performance bonds also guarantee that you will pay subcontractors and that your work will be completed properly.
A compliance contractor license bond only ensures you will follow the rules of your license; it does not guarantee payment to subs or work performance and often does not require a credit check.
Tips to Save Hundreds on Your Contractor License Bond
The best way to decrease your bonds costs is to take care of any personal credit issues (costs are mostly based on personal credit after all). You can also decrease your bond costs by providing your bond agency strong financials and getting your U.S. citizenship. Find out more tips for getting the lowest price on your contractor license bond.
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. Your bond agency should be your first line of defense against bond claims.
How 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. If you need help understanding exactly what your bond guarantees you will and will not do, please contact a bond professional.
Contractor License Bond Process: Three Step Guide
#1: Determine Your Requirements
Most states, but not all, will require you to get contractor license bonds to operate your business legally. If you’re just beginning your research, select your state from the map below to determine your requirements. 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.
Select Your State
#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 you your contractor license. Depending on your state, this process can take anywhere from one to three weeks.
Getting Your Contractor License Bond with Bad Credit
It’s possible to get a contractor license bond 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 license bond. Unfortunately, even if you get approved for a bond with bad credit, your costs will likely be higher. Use our free 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.
You Need More Than Just Your Contractor License Bond
There are a few things you can do to help make your contracting business succeed besides getting your bond. You can incorporate your company, which provides protection for your personal assets, a boost of credibility for your business and easier access to loans. Find out how to take your company to the next level with these effective tactics.
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