Contractor license bonds: a beginners’ guide

Surety bonds can be a puzzling subject to many people. Then again, there are a few simple distinctions that can help you greatly when you start operating as a contractor and need to obtain specific bonds for specific purposes. Let’s tackle contractor license bonds.

It’s very easy to confuse contractor license bonds with contractor bonds such as bid, performance and payment bonds. However, there is a clear difference between them. Contractor license bonds are blanket bonds that guarantee the contractor’s operation in a specific area. Contract bonds, on the other hand, are project-specific and fall into a different bond category.

Contractor bonds

Contractor bonds are required for the particular project in question.

For example, during the bidding process for a project, a contractor might need to provide a bid bond. The bid bond guarantees that if the contractor is granted the contract, he will obtain the next necessary bond – a performance bond. This bond is a guarantee for compliance with the contractual obligation and for completion of the project.

Finally, a payment bond is a security for subcontractors and suppliers that the main contractor will fulfill their obligations for payment of services and supplies down the chain.  

Contractor license bonds

And now we come to the heart of the matter. What, then, are contractor license bonds? First of all, they are not related to any specific construction project. Instead, they are a general license requirement that contractors need to meet in order to operate legally in a certain geographical area.

The license bonds are a guarantee to the local municipality or state that the contractor will abide by the relevant laws in this area. Depending on the location, the contractor might need license bonds for both local and state authorities.

Some contractor license bonds are a guarantee solely for abiding by local regulations. There are other contractor license bonds that include requirements for performance and payment as well. These relate to the completion of projects as well as diligent payment to subcontractors.  

Getting bonded

The contractor license bond is a requirement in the licensing process to become a legal contractor operating in a certain location, whether state, county or municipality. First, you need to get the licensing packet containing details of all relevant requirements. Then you have to obtain the license bond through a bonding agency such as JW Surety Bonds that covers the kind of operations you would like to perform in this area.

Contractors with bad credit are able to get bonded through JW Surety Bonds’ high risk markets. The bonding costs might be higher, as poor credit history reflects a higher risk to the surety. Unlike other agencies that consider a variety of financial and experience factors, we only review the personal credit score which means a broader range of clients can get their bonding with us.

You can get an instant free estimate of the surety bond costs or get a detailed quote.

Once you differentiate clearly between contractor bonds and contractor license bonds, the construction surety bonds field becomes far less complicated to grasp. The entire bonding process is sure to get easier with JW Surety Bonds’ effective service and quick turnaround.

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