What is a Texas Contractor License Bond?
Construction contractors working in Texas may be required to secure a license to work on residential or commercial projects. While there is not a statewide requirement, many local jurisdictions make it mandatory for contractors to go through the licensing process, which often involves posting a Texas contractor license bond.
A Texas contractor license bond is a type of surety bond that protects the local licensing authority and a contractor's customers from work that is not in line with building codes. These surety bonds also provide coverage for financial losses to those harmed if work is not performed correctly.
How Does a Texas Contractor License Bond Work?
Surety bonds like a Texas contractor license bond represent a contractual agreement between the contractor, also known as the principal of the bond, the surety company that provides the bond on behalf of the contractor, and the licensing authority that requires the bond to be in place.
Because there is no statewide requirement for getting a Texas contractor license bond, the obligee of the bond is the licensing authority in a contractor's city or county.
The principal in the agreement is the contractor required to obtain the bond from the local licensing authority.
The surety posts the bond for the contractor and pays any claims if a customer files one. The contractor must then repay the claim to the surety over time.
Who Needs a Texas Contractor License Bond?
Not all contractors are required to get a license or a bond in the state of Texas. Each city or county determines who must have a Texas contractor license bond and in what amount.
Several counties and cities mandate that building and roofing contractors have a bond in place, while others require landscape and irrigation, moving, water treatment, or swimming pool contractors to post a bond.
Check with your local licensing authority or agency to understand if and when a license is needed as a contractor and if a Texas contractor license bond is necessary as part of that process.
How Do You Get a Texas Contractor License Bond?
You can start by submitting a brief quote request online to see how much your bond will cost. Once it is in place and the bond premium is paid, be sure to pay attention to the renewal timeframe to ensure you remain compliant with your contractor's license.
How Much Does a Texas Contractor License Bond Cost?
The cost of a Texas contractor license bond varies depending on the amount of the bond and the risk the surety company takes on when issuing a bond.
When it comes to the amount of the bond, the total amount can vary significantly from one city or county to the next. For example, Abilene building contractors are required to secure a bond of $25,000, while a Beaumont roofing contractor only has a $15,000 bond requirement.
No matter what the total amount of the bond is, contractors are not on the hook for paying the full amount. A bond premium, calculated as a percentage of the total bond amount, is what contractors pay for their Texas contractor license bond.
This price is a percentage of the bond total, ranging from one to 10 percent. Because the surety company takes on some risk with issuing a bond, a credit check is often required.
Can I Gget a Texas Contractor License Bond with Bad Credit?
Having bad credit won’t disqualify you from obtaining a contractor license bond in Texas; however, the poorer your credit is, the more risk the surety company must take on to represent you. You should expect to pay more for your bond premium until you can improve your credit score.
How Do I Renew My Texas Contractor License Bond?
Contractor license bonds are enforced by local municipalities in Texas, and the renewal terms may vary between counties. When your bond is issued, keep an eye on when your bond expires and when it must be renewed. You’ll likely receive a renewal notice in the mail before each expiration, which can help you stay on track.