Texas 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 Texas 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?

A Texas contractor license bond is not always a requirement for getting licensed to operate a contracting business in Texas. There are, however, state licensing requirements for HVAC, plumbing, and electrical contractors.

When a contractor license bond is required, the purpose is to provide some financial protection for project owners against the unlawful or unethical practices of the contractor.

Who Needs One?

Texas does not require general contractors to be licensed at the state level, though there may be a local licensing and bonding requirement for general contractors, as well as for some specialty contractors working in certain municipalities. Some local jurisdictions requiring contractor license or permit bonds include: Amatillo, El Paso, Fort Worth, Galveston, Lubbock, Midland, Odessa, San Antonio, and Waco, among others. In those jurisdictions, a contractor license bond requires a contractor to operate in compliance with local regulations and building codes. Bond amounts vary from $5,000 to $25,000 by jurisdiction and type of contracting.

How Does a Contractor License Bond Work?

There are three parties to a Texas contractor license bond, which forms a legally binding contract among them. The local jurisdiction requiring the bond is known as the “obligee.” The contractor is the “principal.” And the bond’s guarantor is called the “surety.”

If the principal violates the terms of the surety bond, causing a financial loss to a project owner, the injured party can seek compensation by filing a claim against the bond. The surety will investigate the claim and determine whether it is valid. The principal is legally obligated to pay all valid claims up to the full amount of the bond.

The surety’s guarantee that valid claims will be paid is actually a guarantee to lend the principal the funds to pay them, if necessary. If the principal does not have the money to pay a valid claim right away, the surety will pay it initially, on the principal’s behalf. That payment is a loan to the principal, who must repay the debt to the surety. Not doing so within the allotted time can result in the surety taking legal action against the principal to recover the funds.

How Much Does It Cost?

Texas contractor license bonds are sold for an annual premium. That premium is the product of multiplying the required bond amount by the premium rate set by the surety on a case-by-case basis. The main underwriting concern is the risk of the surety not being repaid for claims paid on behalf of the principal. The risk of non-repayment is assessed largely based on the principal’s personal credit score.

Someone with a high credit score has a history of being financially responsible, so the risk of non-repayment is considered to be low. Low-risk results in a low premium rate, potentially 1% or a bit less. Conversely, a low credit score is viewed as a sign of a higher risk of non-repayment, so the premium rate will also be higher.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Texas 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?

A Texas contractor license bond is not always a requirement for getting licensed to operate a contracting business in Texas. There are, however, state licensing requirements for HVAC, plumbing, and electrical contractors.

When a contractor license bond is required, the purpose is to provide some financial protection for project owners against the unlawful or unethical practices of the contractor.

 

Texas does not require general contractors to be licensed at the state level, though there may be a local licensing and bonding requirement for general contractors, as well as for some specialty contractors working in certain municipalities. Some local jurisdictions requiring contractor license or permit bonds include: Amatillo, El Paso, Fort Worth, Galveston, Lubbock, Midland, Odessa, San Antonio, and Waco, among others. In those jurisdictions, a contractor license bond requires a contractor to operate in compliance with local regulations and building codes. Bond amounts vary from $5,000 to $25,000 by jurisdiction and type of contracting.

There are three parties to a Texas contractor license bond, which forms a legally binding contract among them. The local jurisdiction requiring the bond is known as the “obligee.” The contractor is the “principal.” And the bond’s guarantor is called the “surety.”

If the principal violates the terms of the surety bond, causing a financial loss to a project owner, the injured party can seek compensation by filing a claim against the bond. The surety will investigate the claim and determine whether it is valid. The principal is legally obligated to pay all valid claims up to the full amount of the bond.

The surety’s guarantee that valid claims will be paid is actually a guarantee to lend the principal the funds to pay them, if necessary. If the principal does not have the money to pay a valid claim right away, the surety will pay it initially, on the principal’s behalf. That payment is a loan to the principal, who must repay the debt to the surety. Not doing so within the allotted time can result in the surety taking legal action against the principal to recover the funds.

Texas contractor license bonds are sold for an annual premium. That premium is the product of multiplying the required bond amount by the premium rate set by the surety on a case-by-case basis. The main underwriting concern is the risk of the surety not being repaid for claims paid on behalf of the principal. The risk of non-repayment is assessed largely based on the principal’s personal credit score.

Someone with a high credit score has a history of being financially responsible, so the risk of non-repayment is considered to be low. Low-risk results in a low premium rate, potentially 1% or a bit less. Conversely, a low credit score is viewed as a sign of a higher risk of non-repayment, so the premium rate will also be higher.

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