Contractors are required to get a contractor license bond before they can obtain a license and legally work as a contractor. These bonds protect clients and the public if they can’t fulfill the terms of your bond. For example, if a contractor bursts a pipe in a client’s building and doesn't fix it, then the client can file a claim with the bond for compensation of the damages. Contractor license bonds are different from construction bonds needed for public jobs. You should learn more about what a contractor license bond is to understand why you need one.
Below, you’ll learn about the types of bonds, requirements, costs, and benefits you’ll need in addition to a contractor license bond.
Types of Contractor License Bonds
There are a few different types of contractor license bonds that can be required depending on which state you'd like to conduct business in (requirements can even vary by municipality), and the type of contracting work you perform. Some of the most common bond types include:
- Local (county/municipality) contractor license bond
- State contractor license bond
- General contractor license bond
- Electrical contractor license bond
- Plumbing contractor license bond
Our company handles all contractor license bond types, and you can get a free online quote today.
Determine Your Bonding Requirements
States and cities have different bonding requirements. Select your state below to see your requirements.
How Much Do Contractor 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.
Getting Contractor Bonds for Jobs
If you want to perform work on public jobs you'll need to get contractor bonds such as bid bonds and performance bonds; you can learn more about these bonds and how to obtain them by visiting our contractor bond guide.
What Does a Contractor License Bond Cover?
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.
How Credit Affects Your Contractor License Bond Application
Your personal credit is considered to get an idea of your likelihood of triggering a bond claim and your ability to pay them. Having good credit is ideal to get approved with favorable rates.
Getting Your Bond with Bad Credit
It’s possible to get bonded with bad credit, but not all bond agencies will approve you. 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 so you can plan your finances ahead of time.
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 understanding what surety bonds are, and 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.
Frequently Asked Questions
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.
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 contractor 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 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.
You must contact us immediately, as we have a team of claim specialists here to find a resolution for you. Keep in mind, it is crucial that you work with an expert in the surety industry. Learn more about how to ensure you choose the proper bond company.
You can take a look at our full list of license and permit bonds.