Contractor license bonds are one of the most common bond requirements across the nation. Most individual States will require a surety bond as part of their State license requirement (usually along with General Liability Insurance) before they will grant a contractor a license. However, not all States have a uniform statewide requirement. Some States defer to the local municipalities and therefore any individual City, Town, or Village may require a bond as part of their local licensing requirements. Contractor license bonds are intended to protect the general public from any negligent or dishonest acts by the contractor or contracting company as defined by local legislature.
Typically, the bond amount required for this class of business is between $1,000 and $100,000 depending on the type of work the Contractor performs and local risk factors. Some requirements exceed $100,000 for General Contractors looking to work outside of their current license limitations.
Contractor License bonds will usually cost anywhere from 0.5% percent to 10% depending on the type of work performed and local risk factors. For example, a pool or roofing contractor may be considered more hazardous in California than an HVAC contractor in Texas. Personal credit of the contractor and/or credit of the owners of the contracting company can also play a part in the rating process. The Surety (or Insurance) Company that provides the bond has the option to review personal credit while determining the rate for bond, however, in today’s market, many companies are writing contractor license bonds regardless of credit or with less stringent credit requirements than seen in the past.
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