Toll Free: 866-430-3322 7:30AM - 4:30PM MST
Want to stay connected and learn about Bonds? Sign up for our newsletter!
Toll Free: 866-430-3322 7:30AM - 4:30PM MST
Want to stay connected and learn about Bonds? Sign up for our newsletter!
Contractor license bonds are surety bonds that contractors must acquire in order to receive a contractor license or permission from the regulatory entity. Contractor license bonds safeguard the public from financial loss caused by the contractor’s breaches of licensing laws and regulations.
Contractors in most states are required to acquire a surety bond as a condition of the license, and the bond must stay current for the duration of the contractor’s operation.
Unlike most insurance products, surety bonds protect a third party (the obligee) from activities that are in violation of license requirements. The contractor must compensate the surety company if the surety company experiences a loss as a result of the contractor’s activities.
The first step is to figure out the contractor bonds and surety bonds you’ll need, as well as the amounts.
To get a contractor’s license and lawfully run your construction business, most jurisdictions will need you to obtain contractor license bonding. These bonding requirements are determined by the individual licensing or regulatory entities.
Because certain cities need a local contractor license bond in addition to the mandatory state contractor license bond, various bond requirements may apply.
The next step is to apply for a surety bond with a company that is licensed in your state, check the states here. Most surety companies accept applications online. You’ll need information on the bond and the amount required, as well as your employment history and financial details.
To establish eligibility and pricing for a contractor license bond, The Surety Place underwriters will need the following information in order to determine eligibility and surety bond rate:
Some surety agencies will evaluate the applying business’s financial account in order to establish eligibility for bigger bond amounts (typically anything above $50,000). Contractors that have sufficient business capital and a track record of profitability have a higher probability of approval and better rates overall.
Contractors will get a completed surety bond from The Surety Place, which will need to be provided to the appropriate licensing authorities. The original bond which will always include a raised seal from your selected surety agency may be required to be filed by mail in most states.
On most bond forms, surety agencies will include the following information about the business owner and bond:
Following receipt of your contractor license bond, you must:
The state should contact you and provide your contractor license after they receive your bond. This process might take anywhere from one to three weeks, depending on your state.
Without a contractor license bond, you cannot legally operate in most states and your clients have no financial protection if something goes wrong. The bond commits you to following all licensing laws, guarantees a standard of work, and protects the public from harm or financial loss caused by violations of contractor license law.
To legally operate in most states, contractors must first acquire a license and a surety bond. Contractors generally consist of any individual or entity who installs, repairs, or builds any structure — though the exact definition varies by state. Some jurisdictions only require specific contractor types to carry a surety bond, and the bond amount may vary depending on licensing class — residential, commercial, specialty, and so on. Common exceptions depending on state may include government personnel on public projects, public utility businesses, and individuals working on their own property.
The bond is a three-party arrangement between the principal (the contractor), the obligee (the licensing authority requiring the bond), and the surety (the company issuing and guaranteeing the bond). The obligee receives assurance that the contractor is financially capable of paying the bond and will follow all laws and regulations associated with the license.
If you don’t fulfill the conditions of your license, your clients or the general public may file claims against your bond, which you may have to pay. The surety investigates and, if valid, pays the claim — and the contractor is required to reimburse the surety in full. This is a key distinction from insurance: the contractor is ultimately responsible for any claims paid.
For instance, if you do a poor job or fail to meet certain deadlines, the client might submit a claim. Your surety agency will look over this claim to see if it’s legitimate. If the surety determines that the claim is valid, they may have to pay the claim, and you’ll pay the surety back in full.
Contractors are generally regulated by state government agencies under license laws enacted by each state’s legislature. Licensing requirements — including examinations, background checks, and a surety bond — are used by governments to enforce these laws. Requirements can also exist at the county, city, or local level. In some cases, a contractor may need both a state-level license bond and a separate local bond for the jurisdictions they operate in.
No. The contractor license bond guarantees that you will comply with all state and local regulations for holding a contractor license — it does not guarantee the performance of any specific project. For that, you need contract bonds: bid bonds, performance bonds, and payment bonds. Surety Place can help you obtain both your license bond and any contract bonds required on a project-by-project basis.
Surety bonds for contractor licenses typically cost 1.5% to 7.5% of the bond amount every year. Why is there such a wide gap? Surety companies set rates based on a variety of criteria, including your credit history, years in business, bond history, work financials, and personal financials. Contractors with the finest credit and business expertise can expect to pay the lowest rates, while those with challenged credit will pay more.
A few strategies that can help you get the best rate:
At Surety Place, we have partnerships with over 20 “A”-rated surety companies across the nation. That breadth of access means we can shop your bond across multiple markets to find you the most competitive rate available — and when other agencies can’t write the bond at all, our specialty programs allow us to place hard-to-place risks that others turn away.
Yes. Getting bonded with a low credit score, prior bankruptcies, tax liens, or court proceedings is more challenging, but it is very achievable. Contractors in these situations will pay a higher premium, and rates improve as credit does. Surety Place specializes in finding solutions for hard-to-place risks that other agencies turn away.
Yes; the majority of carriers including The Surety Place run a “soft check,” which means the credit review will have no impact on the applicant’s credit. Surety underwriters will look at your personal credit to see if you are eligible for contractor license bonds and what their rate will be. Other parts of the contractor’s application will be considered by underwriters, but credit scores and their underlying data will continue to be the key underwriting tool for contractors. Beyond credit, underwriters also consider your work history, years in business, and financial statements.
These three products protect different parties. A contractor license bond protects customers and the public from the contractor’s failure to comply with licensing laws — unlike insurance, the contractor must repay any valid claims paid by the surety. Liability insurance protects the contractor from legal expenses when a workplace injury results in a lawsuit. Workers’ compensation covers medical treatment and rehabilitation for employees injured on the job. A combination of all three may be required by state legislation and local authorities.
Yes, in most cases a revoked or suspended contractor license can be reinstated, but the path depends on your state. Most states require you to resolve the underlying violation, pay any outstanding penalties, and demonstrate financial responsibility before reinstatement is granted. In many cases, the licensing board will also require additional surety bonding as a condition of reinstatement — above and beyond your standard contractor license bond.
California has one of the most clearly defined processes: the Contractors State License Board (CSLB) requires contractors to file a specific Contractor License Disciplinary Bond before a revoked or suspended license can be reinstated or reissued. The bond amount is set by the CSLB Registrar based on the seriousness of the violation and must remain on file for a minimum of two years. It must be filed in addition to, and cannot replace, the standard contractor license bond.
In other states, the equivalent requirement varies: some states increase the required bond amount on your existing license bond, some require a cash deposit or certificate of deposit held by the licensing board, and some handle it through the licensing board’s discretion on a case-by-case basis. There is no single national standard, so requirements depend entirely on the state and the nature of the violation. If you are facing reinstatement in any state, Surety Place can help you navigate what’s required and get the right bond in place quickly — contact us.
Contractors must follow all laws and regulations per their license to prevent claims on a Contractor License Bond.
Contractors should do the following to best avoid a claim being made against the bond:
Obtaining a Contractor License Bond is simple with The Surety Place. Apply online today and let us assist you in meeting the demands of your consumers. Our courteous underwriting team may be reached by phone 866-430-3322, email, or chat with a live representative.