Contractor License Bonds: Compliance & Protection
In the United States, contractors often need Contractor License Bonds (CLBs) to become licensed. These bonds can be required at the local, county, or state level, and the party demanding the bond is called the obligee. CLBs provide assurance that contractors will adhere to specific regulations and licensing prerequisites. Their purpose is to safeguard consumers and government entities from potential financial losses.
Who Needs Contractor License Bonds?
Numerous types of contractors may need bonds, and different requirements might apply to residential and commercial contractors. Contractors handling diverse types of work may need multiple bonds based on the obligee's specifications. Here are common examples of CLBs:
- A/C and Heating Contractor
- Electrical Contractor
- Elevator Contractor
- General Contractor
- Sidewalk Contractor
- Roofing Contractor
Distinction Between Contractor License Bonds and Contract Surety Bonds
Contractor License Bonds (CLBs)
CLBs fall under the category of commercial license and permit bonds. Contractors usually require these bonds before commencing work in most states, and they must maintain bond coverage throughout their careers. Bond amounts can vary based on specific requirements, the nature of the work, or the volume of work being undertaken.
Contract Surety Bonds
Contract surety bonds are typically mandatory for specific construction projects. The bond amount is determined by the project's scale and guarantees that the contractor will complete the work and fulfill obligations towards subcontractors, laborers, and material suppliers. Such bonds are only essential for the designated project duration.
Merchants Bonding Company specializes in both CLBs and contract surety bonds.
Merchants' Underwriting for Contractor License Bonds
Merchants' underwriting process for CLBs varies, but many bonds can be instantly issued online. Other bonds may require a signed application, business and personal indemnity, and a credit check. Merchants does not require indemnity signatures for bonds up to $75,000.
Bond Amount and Rates
The bond amount for CLBs is highly variable, contingent on the obligee. The amount of premium due is a percentage of the bond amount.
Appointed insurance agents can find individual bond requirements by signing in to the Hub, Merchants' intuitive and efficient bonding website. Use our Find an Agent tool to locate an experienced insurance agent near you.
CLB rates are influenced by factors such as bond form, statute language, the type of work, and indemnitor qualifications. Merchants often provides preferred rates for state-required license bonds, which can result in lower rates for well-qualified contractors. Access instant price quotes on the Hub.
Navigating Claim Procedures
All CLBs operate on a basic premise: If a bonded and licensed contractor violates the bond's terms, a claim can be filed for compensation. If valid, the surety will pay the claim, but the contractor must reimburse the surety in full.
Simplifying the Bonding Experience
Merchants Bonding Company's expertise and simplified bonding process ensure that contractors can meet licensing requirements seamlessly.
HOW DO I GET A SURETY BOND?
Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.
WHAT IS A SURETY BOND?
A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.
All information provided is subject to change without notice.