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Guide to Obtaining a Contractor License Bond

What is a Contractor License Bond?

Contractor license bonds are surety bonds that contractors must acquire in order to receive a contractor license or permission from the government. Contractor license bonds safeguard the public from financial loss caused by the contractor’s breaches of licensing laws.

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 illegal. The contractor must compensate the surety company if the surety company experiences a loss as a result of the contractor’s activities.

What Constitutes a “Contractor”?

To operate in most states, contractors must first acquire a license and a surety bond. Contractors consist of any individual who installs, repairs, or builds any structure but the definition of a contractor can vary based on the state. 

There are a few exceptions to this general norm in most states, including: 

Some jurisdictions only require specific contractors to acquire a surety bond, and the bond amount may vary depending on the contractor’s licensing class (residential, commercial, specialty etc).

How Does it Work?

Contractors engage in an arrangement with the obligee (the entity that requires the bond) and the surety agency when acquiring a contractor license bond. The obligee receives assurance from the surety that the contractor is financially capable of paying the bond and will follow all laws and regulations associated with the bond.

If you don’t fulfill the conditions of your contract, your clients or the general public may file claims against your bond, which you’ll have to pay.

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 decides that the claim is valid, they’ll pay the claim, and you’ll pay the agency back in full. You are not required to pay the claim if the surety finds no truth within the claim.

How Do You Get a Contractor License Bond?

Determine Your Requirements

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.

Because certain cities need a local contractor license bond in addition to the mandatory state contractor license bond, various bond requirements may apply.

Find a Surety Agency and 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.

Sign and Submit Your Bond to the State

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. 

If you’d like to learn more about this bond, go to our contractor license bond page for details on the fees, benefits, coverage, and other criteria at Surety Place.

Who Regulates Contractors?

Contractors are regulated by state government agencies under license laws enacted by each state’s legislature. Licensing requirements, such as examinations, background checks, and a surety bond, are used by governments to enforce the law. If the contractor does not follow the law, the surety bond assures that the public will be reimbursed.

How Much Does a Contractor License Bond Cost?

Surety bonds for contractor licenses typically cost 1.5 percent to 7.5 percent of the bond amount every year. Why is there such a wide gap? Insurance companies set rates based on a variety of criteria, including your customer’s credit history and experience. 

Contractors with the finest credit and business expertise may expect to pay the lowest rates, while those with bad credit can expect to pay the most.

There are a few strategies that can help you save money on your bond: 

Can I get bonded if I have a low score?

Getting bonded can be challenging for many contractors who have a low credit score or have had previous bankruptcies, tax liens, or court proceedings. However, getting bonded with negative credit isn’t all that tough!

The only notable distinction for such candidates is that their bond premiums are somewhat higher, ranging from 3% to 5%. However, if their credit score improves, such candidates will be able to get higher rates on their bonds.

Do Surety Companies Provide Contractor License Bond Financing?

The majority of contractor licensing bond premiums are reimbursable. The bond must contain a cancellation provision in the bond form to be qualified. To offer the funding, premium finance businesses generally charge a finance fee and an interest rate.

What Is the Difference Between a Contractor Bond, Liability Insurance, and Workers Compensation Insurance?

Customers and the general public are protected by a contractor bond, while employers are covered by liability insurance and employees are covered by worker’s compensation. A combination of these may be required by state legislation and other authorities. 

Unlike workers’ compensation or insurance, contractors are responsible for paying any valid claims made against their contractor bond by the general public or a customer.

Workers’ compensation pays for medical treatment and rehabilitation for employees who have been injured on the job. 

When a workplace injury happens and a lawsuit is filed, liability insurance pays the expenditures that aren’t covered by worker’s compensation.

Is a Credit Check Required to Purchase a Contractor License Bond?

Surety underwriters will look at your personal credit to see if you are eligible for contractor license bonds and what their rate will be. The majority of carriers employ a “soft check,” which means the credit review will have no impact on the applicant’s credit. 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.

What information is needed by the surety agency in order to apply for a Contractor License Bond? 

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. 

What is the process for filing for a contractor’s bond? 

Contractors will get a completed surety bond from The Surety Place, which will be logged with the appropriate licensing authorities. The original bond which will always include a raised seal from your selected surety agency must be filed by mail in most states. 

On most bond forms, surety agencies will include the following information about the business owner and bond:

 What Can Contractors Do to Protect Their Contractor License Bonds From Claims?

Contractors must follow all laws and regulations in their state 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.


June 29th, 2021