Maryland Contractor License Bonds

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

 

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What Is a Contractor License Bond?

The Maryland Department of Labor’s Home Improvement Commission (MHIC) licenses contractors to provide home improvement services within the state. When a contractor license bond is required, the purpose is to provide financial protection for homeowners and the state of Maryland.

 

Who Needs One?

In Maryland, applicants for a home improvement contractor’s license must furnish proof of financial solvency, meaning that their total assets (net worth) exceed their financial liabilities and meet the state’s financial solvency guidelines. Applicants who can prove financial solvency will be covered by the MHIC Guaranty Fund, which compensates homeowners for damages up to $20,000 if their contractor’s work is substandard or incomplete.

Contractors who do not meet the financial solvency criteria must provide a two-year $20,000 surety bond or obtain an indemnitor to assume financial responsibility for the business.

Additionally, some municipalities may require contractors to obtain a local license, which may entail purchasing a contractor license bond.

How Does a Contractor License Bond Work?

A Maryland contractor license bond is a legally binding contract among three parties:

  • MHIC or the local authority requiring the bond is known as the “obligee.”
  • The contractor required to purchase the bond is called the “principal.”
  • The bond’s guarantor is referred to as the “surety.”

If the principal fails to complete a home improvement job to the homeowner’s satisfaction, the homeowner may file a claim against the surety bond and seek financial damages. When this happens, the surety investigates to make sure the claim is valid, and if it is, the principal is legally obligated to pay it.

But unless the principal has the funds to pay a claim immediately, the surety will pay it initially as a loan to the principal. The principal then has a certain amount of time in which to repay the surety. Not repaying the surety can lead to the surety taking legal action against the principal to recover the debt.

How Much Does It Cost?

The contractor bond cost required by MHIC is determined by multiplying the $25,000 bond amount by the premium rate the surety assigns to the principal through underwriting.

The surety’s primary concern is the risk of not being repaid for claims paid on behalf of the principal. The primary measure of the risk of non-repayment is the principal’s personal credit score.

A person with a high credit score has a demonstrated history of being financially responsible, and, therefore, the risk to the surety is low. Low risk deserves a low premium rate. On the other hand, a low credit score means the risk to the surety is higher, so the premium rate also will be higher. A well-qualified principal should be assigned a premium rate between 1% and 3%.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Maryland contractor license bonds. 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 CONSTRUCTION BOND QUOTE

What Is a Contractor License Bond?

The Maryland Department of Labor’s Home Improvement Commission (MHIC) licenses contractors to provide home improvement services within the state. When a contractor license bond is required, the purpose is to provide financial protection for homeowners and the state of Maryland.

 

In Maryland, applicants for a home improvement contractor’s license must furnish proof of financial solvency, meaning that their total assets (net worth) exceed their financial liabilities and meet the state’s financial solvency guidelines. Applicants who can prove financial solvency will be covered by the MHIC Guaranty Fund, which compensates homeowners for damages up to $20,000 if their contractor’s work is substandard or incomplete.

Contractors who do not meet the financial solvency criteria must provide a two-year $20,000 surety bond or obtain an indemnitor to assume financial responsibility for the business.

Additionally, some municipalities may require contractors to obtain a local license, which may entail purchasing a contractor license bond.

In Maryland, applicants for a home improvement contractor’s license must furnish proof of financial solvency, meaning that their total assets (net worth) exceed their financial liabilities and meet the state’s financial solvency guidelines. Applicants who can prove financial solvency will be covered by the MHIC Guaranty Fund, which compensates homeowners for damages up to $20,000 if their contractor’s work is substandard or incomplete.

Contractors who do not meet the financial solvency criteria must provide a two-year $20,000 surety bond or obtain an indemnitor to assume financial responsibility for the business.

Additionally, some municipalities may require contractors to obtain a local license, which may entail purchasing a contractor license bond.

The contractor bond cost required by MHIC is determined by multiplying the $25,000 bond amount by the premium rate the surety assigns to the principal through underwriting.

The surety’s primary concern is the risk of not being repaid for claims paid on behalf of the principal. The primary measure of the risk of non-repayment is the principal’s personal credit score.

A person with a high credit score has a demonstrated history of being financially responsible, and, therefore, the risk to the surety is low. Low risk deserves a low premium rate. On the other hand, a low credit score means the risk to the surety is higher, so the premium rate also will be higher. A well-qualified principal should be assigned a premium rate between 1% and 3%.

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