Contractor License Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Learn about contractor license bonds below, and contact us today to request a quote. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

CONTACT US FOR A

FREE CONTRACTOR LICENSE BOND QUOTE

What Are Contractor License Bonds?

Contractor license bonds are one of the most common types of license and permit surety bonds, which get their name from the fact that they’re a requirement for getting and keeping a license to operate a certain type of business within a particular state or local jurisdiction. Contractor license bonds serve multiple purposes:

  • They obligate licensed contractors to carry out their work in complete compliance with applicable state statutes or local ordinances and building codes.
  • They protect the state or local government against financial loss or liability stemming from a contractor’s unlawful or unethical actions while working on taxpayer-funded projects.
  • They provide a source of funds for paying fines and penalties assessed due to a contractor’s failure to abide by the terms of a contractor license surety bond agreement.
  • They help maintain high quality standards and consumer confidence in the contracting profession.

Who Needs Them?

The laws regarding contractor licensing vary greatly from one state to the next. Some states require licensing of general contractors and specialty contractors, such as electricians and plumbers, while others license only specialty contractors. The same is true of individual counties and municipalities within a state, whether or not there is also state-level licensing of contractors.

You’ll need to determine what the specific licensing requirements are in the state(s) in which you plan to operate as a contractor. You may find that you will need to obtain both a state and a local contractor license, each of which will probably require a contractor license bond.

How Do They Work?

Every contractor license bond is a legally binding contract among three parties known in the language of surety bonds as the “obligee,” “principal,” and “surety.”

  • The obligee is the state or local government entity requiring the bond as part of the contractor licensing process. The obligee establishes the required bond amount (the “penal sum,” which is the maximum amount that will be paid on a single claim).
  • The principal is the contractor required to purchase the contractor license bond. The principal is legally responsible for paying valid claims.
  • The surety is the company that underwrites and issues the bond. It’s up to the surety to decide whether or not to issue a bond to a given contractor and how much each contractor will pay as the bond premium.

If a principal violates the terms of the surety bond agreement, the obligee may have a valid claim against the contractor license bond. The surety will conduct an investigation into every claim to ensure that it is valid and may try to negotiate an amicable settlement.

If the surety approves a claim for payment, the company will pay the claim initially and then be reimbursed by the principal. Paying a claim on behalf of the principal creates a debt that the principal is legally obligated to repay.

What Do They Cost?

The surety’s main concern in determining whether to issue a contractor license bond and how much to charge for it is the risk associated with extending credit to the principal. Therefore, the primary consideration in setting the premium rate is the principal’s personal credit score.

A principal with good credit should qualify for the standard market rate, which is between one and three percent of the bond’s penal sum. A principal with credit problems should still be able to purchase a contractor license bond but will pay a substantially higher premium rate.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Learn about contractor license bonds below, and contact us today to request a quote. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

CONTACT US FOR A

FREE CONTRACTOR LICENSE BOND QUOTE

What Are Contractor License Bonds?

Contractor license bonds are one of the most common types of license and permit surety bonds, which get their name from the fact that they’re a requirement for getting and keeping a license to operate a certain type of business within a particular state or local jurisdiction. Contractor license bonds serve multiple purposes:

  • They obligate licensed contractors to carry out their work in complete compliance with applicable state statutes or local ordinances and building codes.
  • They protect the state or local government against financial loss or liability stemming from a contractor’s unlawful or unethical actions while working on taxpayer-funded projects.
  • They provide a source of funds for paying fines and penalties assessed due to a contractor’s failure to abide by the terms of a contractor license surety bond agreement.
  • They help maintain high quality standards and consumer confidence in the contracting profession.

The laws regarding contractor licensing vary greatly from one state to the next. Some states require licensing of general contractors and specialty contractors, such as electricians and plumbers, while others license only specialty contractors. The same is true of individual counties and municipalities within a state, whether or not there is also state-level licensing of contractors.

You’ll need to determine what the specific licensing requirements are in the state(s) in which you plan to operate as a contractor. You may find that you will need to obtain both a state and a local contractor license, each of which will probably require a contractor license bond.

Every contractor license bond is a legally binding contract among three parties known in the language of surety bonds as the “obligee,” “principal,” and “surety.”

  • The obligee is the state or local government entity requiring the bond as part of the contractor licensing process. The obligee establishes the required bond amount (the “penal sum,” which is the maximum amount that will be paid on a single claim).
  • The principal is the contractor required to purchase the contractor license bond. The principal is legally responsible for paying valid claims.
  • The surety is the company that underwrites and issues the bond. It’s up to the surety to decide whether or not to issue a bond to a given contractor and how much each contractor will pay as the bond premium.

If a principal violates the terms of the surety bond agreement, the obligee may have a valid claim against the contractor license bond. The surety will conduct an investigation into every claim to ensure that it is valid and may try to negotiate an amicable settlement.

If the surety approves a claim for payment, the company will pay the claim initially and then be reimbursed by the principal. Paying a claim on behalf of the principal creates a debt that the principal is legally obligated to repay.

The surety’s main concern in determining whether to issue a contractor license bond and how much to charge for it is the risk associated with extending credit to the principal. Therefore, the primary consideration in setting the premium rate is the principal’s personal credit score.

A principal with good credit should qualify for the standard market rate, which is between one and three percent of the bond’s penal sum. A principal with credit problems should still be able to purchase a contractor license bond but will pay a substantially higher premium rate.

Construction Bonds By State

Here’s where to find all details on construction license bonds based on your state.

Select A State:

REQUEST A QUOTE

Request a quote online or call today to speak with one of our surety bond experts about obtaining a contractor license bond.