South Dakota 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 South Dakota 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?

Relatively few South Dakota contractors are required to purchase a contractor license bond. When a contractor license bond is required, the purpose is to protect the licensing authority and members of the public (e.g., the contractor’s future clients) against financial losses caused by a licensed contractor. 

The bond legally obligates the contractor to operate in compliance with all applicable laws, regulations, and local building codes. Any violation that results in financial harm to the obligee or other party can result in the injured party filing a claim against the bond and being awarded monetary damages.

Who Needs One?

South Dakota does not license contractors at the state level. But some municipalities in South Dakota have their own licensing requirements, primarily for specialty contractors such as electricians and plumbers. In some cases, purchasing a contractor license bond is a prerequisite for local licensure.

How Does a Contractor License Bond Work?

A South Dakota contractor license bond is legally binding on:

  • the local licensing authority (the “obligee”) requiring the bond, 
  • the contractor (the “principal”) purchasing the bond, and 
  • the “surety” guaranteeing the bond. 

In surety’s guarantee is actually an agreement to extend credit to the principal for the purpose of paying a valid claim.

Upon receipt of a claim, the surety investigates it and establishes its validity. The principal is legally obligated to pay all valid claims. But if the principal doesn’t have sufficient funds on hand to pay a claim immediately, the surety will pay it on the principal’s behalf as a loan to the principal. If the principal does not repay the resulting debt to the surety, the surety can take legal action to recover the funds. 

How Much Does It Cost?

Two factors go into calculating the annual premium cost of a South Dakota contractor license bond;

The required bond amount established by the obligee, and the premium rate assigned through an underwriting assessment of the risk to the surety. The main risk is that the principal might not repay the surety for claims paid on behalf of the principal. That risk is measured largely on the basis of the principal’s personal credit score.

A high credit score is sign of a financially responsible individual, which means that the risk of non-repayment is low, so the premium rate will also be low. However, a low credit score suggests that the risk to the surety is higher, warranting a higher premium rate. The premium rate for a well-qualified principal usually is in the range of 1% to 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 South Dakota 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?

Relatively few South Dakota contractors are required to purchase a contractor license bond. When a contractor license bond is required, the purpose is to protect the licensing authority and members of the public (e.g., the contractor’s future clients) against financial losses caused by a licensed contractor. 

The bond legally obligates the contractor to operate in compliance with all applicable laws, regulations, and local building codes. Any violation that results in financial harm to the obligee or other party can result in the injured party filing a claim against the bond and being awarded monetary damages.

 

South Dakota does not license contractors at the state level. But some municipalities in South Dakota have their own licensing requirements, primarily for specialty contractors such as electricians and plumbers. In some cases, purchasing a contractor license bond is a prerequisite for local licensure.

A South Dakota contractor license bond is legally binding on:

  • the local licensing authority (the “obligee”) requiring the bond, 
  • the contractor (the “principal”) purchasing the bond, and 
  • the “surety” guaranteeing the bond. 

In surety’s guarantee is actually an agreement to extend credit to the principal for the purpose of paying a valid claim.

Upon receipt of a claim, the surety investigates it and establishes its validity. The principal is legally obligated to pay all valid claims. But if the principal doesn’t have sufficient funds on hand to pay a claim immediately, the surety will pay it on the principal’s behalf as a loan to the principal. If the principal does not repay the resulting debt to the surety, the surety can take legal action to recover the funds. 

Two factors go into calculating the annual premium cost of a South Dakota contractor license bond;

The required bond amount established by the obligee, and the premium rate assigned through an underwriting assessment of the risk to the surety. The main risk is that the principal might not repay the surety for claims paid on behalf of the principal. That risk is measured largely on the basis of the principal’s personal credit score.

A high credit score is sign of a financially responsible individual, which means that the risk of non-repayment is low, so the premium rate will also be low. However, a low credit score suggests that the risk to the surety is higher, warranting a higher premium rate. The premium rate for a well-qualified principal usually is in the range of 1% to 3%. 

 

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