In the process of registering your company as a construction contractor, you will need a contractor license bond. It is usually one of the requirements for issuing a license to a contractor within a state. A contractor license bond is essentially a surety bond that acts as a guarantee that you will abide by all the laws and regulations stated by your local regulatory bodies.
It also acts as a surety or credit line ensuring that your clients are protected and assured that you will carry out your work to the highest professional standard possible. Here is more information on why they are necessary.
Contractor license bond requirements vary from state to state and you will need to apply to get access to these conditions.
Personal and Financial Documents
Your finances will be studied closely to make a precise judgment of your business status. This will allow the bonding company to give you an exact premium based on your credit score. This credit score reflects the state of your finances and could affect the amount of premium you will pay as bonding companies are always careful when giving out bonds. In some cases, the applications are rejected out rightly.
Apply for your bond online and get approval once you’re clear with the documentation required for your bond. It is usually a fast process and you should be done within minutes unless you have problems with the conditions required in your state. Check for state requirements before proceeding with such applications.
• Sign And Submit
Immediately after receiving the contractor license bond, you should sign it, make a personal copy and send the signed document to the relevant state board or agency. These agencies are different in many states but you should get your license within 3 weeks of submission.
• Cost of Contractor License Bonds
Your contractor license bond isn’t free and it will cost you 0.75% to 2.5% of the overall amount of the bond you posted. The actual percentage will depend on your credit score, business experience, and financial statements. The amount could also differ depending on the state you’re working in.
Contractor license bond requirements are mostly background checks to determine if your business is running within the provisions of the law. Bankruptcy, bad credit, and ongoing litigation can affect your application of a contractor license bond as many sureties do not feel secure granting bonds to such high-risk applicants.
In certain cases, bonding companies charge higher premiums between 5% and 10% for high-risk contractors who have a bad credit score or a history of financial trouble. It is a subtle way of protecting themselves if the company folds up unexpectedly or incurs significant losses due to incompetence or failure to complete a job.