What's the Difference? Contractor License Bonds vs Contract Bonds
Contractor license bonds (CLB) and contract surety bonds, while similar, serve distinct purposes. Contractor license bonds are typically required by state or local authorities before a contractor can legally conduct business. These bonds ensure that contractors comply with licensing laws and regulations. The primary goal is to protect the public and ensure that contractors operate within the bounds of the law.
Contract surety bonds, on the other hand, are specifically tied to individual construction projects. These bonds are essential for ensuring that contractors fulfill their contractual obligations, including completing the project and compensating subcontractors, laborers, and suppliers.
Contractor License Bonds
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Contract Surety Bonds
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What is A Contractor License Bond?
A contract license bond ensures compliance with state or local licensing laws. They are mandatory for contractors wishing to work legally within a jurisdiction. |
What is A Contract Surety Bond?
A contract surety bond guarantees that a contractor will adhere to the terms of a specific project contract. This includes completing the project according to the contract specifications and making timely payments to all involved parties. |
What is the Coverage?
These bonds cover fines or penalties that may arise from non-compliance with state or local regulations. Many contractor license bonds may also guarantee payment and performance obligations. |
What is the Coverage?
The bond covers the performance of a specific project contract, including completion, and ensures payment to subcontractors, laborers, and suppliers. |
Who Needs These Bonds?
Contractor license bonds are required for a wide range of contractors, including those involved in mechanical, roofing, and electrical work. Depending on the scope of their operations, contractors may need multiple types of license bonds. |
Who Needs These Bonds?
Contract surety bonds are particularly important for contractors securing large or public construction projects, as they are required for federal or state contracts over certain limits and often for private projects as well. |
What is the Bond Amount?
The amount can vary significantly. It depends on factors such as the type of work being performed, state statutes, and the contractor's qualifications. |
What is the Bond Amount?
The amount required for a contract surety bond is generally a percentage of the contract's value. This ensures that the bond amount is proportional to the size and scope of the project being undertaken. |
What is Merchants' Underwriting Process?
The underwriting process for contractor license bonds is typically straightforward. Bonds for amounts up to $25,000 can be issued almost instantly. However, bonds required for federal or state agencies may necessitate a signed application and proof of good credit. |
What is Merchants' Underwriting Process?
Merchants' underwriting philosophy focuses on common sense rather than an inflexible formula. A focus on net worth and combining business and personal equity are central to the process. |
What is the Claims Process?
If the bond's terms are broken, a claim can be made against the bond for compensation. |
What is the Claims Process?
If the bond's terms are broken, a claim can be made against the bond for compensation. |
Get Your Bonds Quickly & Easily
Regardless of the type of bond you need, most can be processed quickly through Merchants' bonding website, the Hub. Visit the Hub to get started today.
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.