Michigan 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 Michigan 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?

When a Michigan contractor license bond is required, the purpose is to provide financial protection for the licensing authority and project owners. In the event that a licensed contractor commits a regulatory violation that results in a monetary loss, the injured party can seek compensation by filing a claim against the contractor’s license bond. One common example of a regulatory violation is noncompliance with applicable building codes.

 

Who Needs One?

You must receive one of the following licenses in order to operate as a general contractor in Michigan on projects costing more than $600 a residential builder’s license or a residential maintenance and alteration contractor. The Michigan Department of Licensing and Regulatory Affairs is responsible for issuing these permits. For commercial contractors, several localities have their own licensing requirements.

How Does a Contractor License Bond Work?

There are three parties to a locally required contractor license bond:

  • The “obligee”— the local authority requiring the purchase of the bond
  • The “principal”— the contractor required to provide the obligee with the bond
  • The “surety”— the party guaranteeing the bond

The bond is legally binding on all three parties.

The terms of the surety bond agreement require the principal to comply with certain specific laws and regulations. The bond provides a way to compensate the injured party when a violation by the principal, such as failing to abide by local building codes, causes a financial loss. The injured party can file a claim against the bond, and if the surety finds the claim to be valid, the principal is legally obligated to pay it.

The surety’s guarantee of the bond is a guarantee to extend credit to the principal for the purpose of paying valid claims. So the surety will pay a valid claim initially, creating a debt that the principal must repay to the surety within a specified period of time. Not repaying that debt can result in the surety suing the principal to recover the funds.

How Much Does It Cost?

The obligee establishes the required bond amount, and the surety sets the premium rate for each bond applicant. The annual premium cost of a contractor license bond is calculated by multiplying the bond amount by the premium rate.

The premium rate is determined through an underwriting process focusing on the risk of the surety not being repaid for claims paid on the principal’s behalf. That risk is measured largely based on the principal’s personal credit score. The higher the credit score, the lower the risk to the surety, and vice versa. Low risk is rewarded with a low premium rate, while higher risk warrants a higher premium rate. A well-qualified principal is likely to pay 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 Michigan 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?

When a Michigan contractor license bond is required, the purpose is to provide financial protection for the licensing authority and project owners. In the event that a licensed contractor commits a regulatory violation that results in a monetary loss, the injured party can seek compensation by filing a claim against the contractor’s license bond. One common example of a regulatory violation is noncompliance with applicable building codes.

 

You must receive one of the following licenses in order to operate as a general contractor in Michigan on projects costing more than $600 a residential builder’s license or a residential maintenance and alteration contractor. The Michigan Department of Licensing and Regulatory Affairs is responsible for issuing these permits. For commercial contractors, several localities have their own licensing requirements.

There are three parties to a locally required contractor license bond:

  • The “obligee”— the local authority requiring the purchase of the bond
  • The “principal”— the contractor required to provide the obligee with the bond
  • The “surety”— the party guaranteeing the bond

The bond is legally binding on all three parties.

The terms of the surety bond agreement require the principal to comply with certain specific laws and regulations. The bond provides a way to compensate the injured party when a violation by the principal, such as failing to abide by local building codes, causes a financial loss. The injured party can file a claim against the bond, and if the surety finds the claim to be valid, the principal is legally obligated to pay it.

The surety’s guarantee of the bond is a guarantee to extend credit to the principal for the purpose of paying valid claims. So the surety will pay a valid claim initially, creating a debt that the principal must repay to the surety within a specified period of time. Not repaying that debt can result in the surety suing the principal to recover the funds.

The obligee establishes the required bond amount, and the surety sets the premium rate for each bond applicant. The annual premium cost of a contractor license bond is calculated by multiplying the bond amount by the premium rate.

The premium rate is determined through an underwriting process focusing on the risk of the surety not being repaid for claims paid on the principal’s behalf. That risk is measured largely based on the principal’s personal credit score. The higher the credit score, the lower the risk to the surety, and vice versa. Low risk is rewarded with a low premium rate, while higher risk warrants a higher premium rate. A well-qualified principal is likely to pay a premium rate between 1% and 3%.

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