California surety bond basics
Surety bonds are three-party contractual agreements between the following:
- Principal: A business or individual that needs to get a surety bond
- Obligee: The entity that sets the bonding requirement for the principal
- Surety: The company that issues the bond
Most bonds are required at a state level regardless of where in California the principal lives. There are also city-level bonds in which local municipalities set a bonding requirement for people in their area.
What is the purpose of getting a surety bond?
California surety bonds are put in place to provide a guarantee that businesses or individuals will comply with certain regulations. They also give the state and the public the means to seek repayment if they suffer damage at the hands of the bondholder.
If someone is harmed by the bondholder, the injured party may file a claim against the bond. With the claim, the person seeks financial compensation for the damages they have suffered. If the claim is shown to be valid, the surety company will pay out financial damages to the claimant.
The amount of the claim cannot exceed the total value of the bond. Bondholders that have successful claims made against their bond must reimburse the surety company.
There are various reasons someone may file a claim against the bond. However, they share the same general characteristics of the bondholder violating some standards specified in the state’s regulations.
Claims can be burdensome to manage, so it is important to ensure that you are taking steps to avoid potential issues. Know all the rules and regulations related to your industry.
Types of California surety bonds
California surety bonds fall under one of the following categories:
License and permit bonds
These bonds are required for individuals and businesses that need to get a professional license. By requiring a bond, the regulating agency gets extra assurance that the licensee will adhere to the licensing standards.
Court bonds
Court bonds are required for a variety of court proceedings. For instance, if you want to become a fiduciary or guardian to another person you will need to get a surety bond.
Commercial bonds
Commercial surety bonds are like license and permit bonds. Companies are required by the state to get them in order to ensure performance and protect the general public. Bondholders must adhere to all regulations and codes or risk a claim being made against the bond. Common businesses that need commercial bonds include liquor stores and other establishments that sell alcohol.
Fidelity bonds
Fidelity bonds protect company owners and customers against dishonest employees, fraud, or embezzlement. By getting the bonds, companies have an extra layer of security and are more attractive to clients.
Contract bonds
Contract bonds are often required to work or bid on large public projects. There are a variety of contract bonds, including bid bonds, performance bonds, and payment bonds. Contract bonds give assurance to the project owner that the terms outlined in the contract will be followed. They also ensure subcontractors, laborers, and suppliers are paid on time.
With a performance bond, the obligee is protected if the contractor fails to perform as required.
How much does a surety bond cost in California?
When the obligee mandates a bond they will specify the total amount for the bond. This represents the maximum amount that the surety company is liable to pay in the event of a successful claim.
Bond amounts can vary widely depending on the type of surety bond. For example, Commercial Car Wash bonds in California have a required bond amount of $150,000.
To get your surety bond, you will need to pay a percentage of the total bond amount as a premium. Premium rates can vary depending on a wide range of factors.
One of the biggest factors is the type of bond. Certain bonds are riskier than others. If the bond is riskier, the surety company will want a higher premium. This helps protect them against the chances of increased claims against the bond.
For higher-risk bonds, the standard premiums can go from 3% to 10%. Lower risk bonds can go for a premium as low as 1% to 3%.
Underwriting is the process in which a qualified party (usually the surety) reviews the applicant to determine a premium. If the surety company chooses to review your personal qualifications, some of the main factors they will consider include your credit score, financial history, and industry experience. Generally speaking, the better your qualifications, the more favorable the bond quote you will receive.
Bad credit won’t prevent you from getting a California surety bond, but you may have to pay a slightly higher premium.
Common California surety bonds
Below are some of the most common types of surety bonds for residents of California:
Motor Vehicle Dealer Bonds
Auto dealer bonds are required by the California Department of Motor Vehicles (DMV) as part of the licensing process for businesses that sell new or used cars, motorcycles, or all-terrain vehicles.
By getting a surety bond, the state ensures that the dealer conducts all business practices ethically and in compliance with the California Vehicle Code section 11711.
The required bond amount for California motor vehicle dealer bonds ranges from $10,000 to $50,000 depending on the particular license type and the number of vehicles that the dealer sells over a 12-month period.
Contractor License Bonds
California contractors generally need to post one or more surety bonds before they can work in the state.
The Contractors State License Board (CSLB) requires a $15,000 bond to ensure that contractors comply with the State Contractors License Law (B&P Code Section 7000).
In addition to this bond, a $12,500 qualifying individual is required for the Responsible Managing Employee or the Responsible Managing Party for the contracting firm.
If your license is revoked for a violation of the contractor license law, you may need to get a $15,000 Disciplinary bond. This bond is filed with the registrar and is needed for your license to be reinstated.
Many cities and municipalities throughout California have their own bonding requirement for contractors. For example, in Los Angeles contractors need to get additional permits to work on a variety of construction projects, including those involving grading, encroachment, or right-of-way work.
Cannabis Bonds
Cannabis bonds are a recent surety bond requirement in California. The bonds are required for retailers, manufacturers, cultivators, distributors, and testing laboratories. The California Bureau of Cannabis Control is responsible for overseeing the bonding process.
There are also Medical Marijuana Bonds for medical marijuana dispensaries. These make sure that you comply with California Medical Cannabis Regulation and Safety Act (MCRSA).
Finance and Lender Bonds
There are a variety of bonds required for finance professionals. The bonds are needed to adhere to California Finance Lenders Laws. They are mandated by the Commissioner of Business Oversight of the State of California.
Lenders and brokers that originate residential mortgage loans must get a surety bond. The required amount for these bonds ranges between $25,000 and $200,000. The exact bond amount depends on the lender’s loan volume during the previous year.
Durable Medical Equipment Provider (DMEPOS) Bonds
These bonds are required on the federal level; however they are quite common in California. These bonds are needed for the suppliers of durable medical equipment, prosthetics, orthotics, and suppliers.
The bonds are mandated by the Centers for Medicare and Medicaid Services to help prevent Medicare billing fraud. The minimum required bond amount is $50,000 for each National Provider Identifier (NPI) location.
Immigration Consultant Bonds
Immigration consultants in California are required to get a $100,000 surety bond before working. By posting a California immigration consultant surety bond, consultants agree to conduct business in accordance with the provisions of Chapter 19.5 of Division 8 of the Business and Professions Code of the State of California. Some of the acts that would violate these regulations include:
- Making false statements to a client while providing services
- Making a guarantee unless it is written
- Making a statement indicating that the consultant can obtain special favors from the United States and Citizenship Services
- Charging a client a fee for a referral for services the consultant can’t fulfill
Tax Preparer Bonds
Tax preparers in California need to get bonded to become a California Tax Education Council (CTEC) registered tax preparer.
By posting a California tax preparer surety bond, tax preparers are bound to conduct business in compliance with the provisions of Division 8, Chapter 14 of the Business and Professions Code. Specifically, these bonds protect any person from a principal’s misstatements, misrepresentations, dishonesty, fraud, deceit, or any other unlawful acts or omissions.
The bonds have a required amount of $5,000.
Insurance Broker Bonds
The California Producer Licensing Bureau requires insurance brokers to post $10,000 surety bonds prior to conducting business. By posting a California insurance broker bond, principals (insurance brokers) pledge to handle all funds received appropriately and apply them to the services and products requested by the client.
Additional resources
For more information on getting different licenses and bonds in California, you can check out more of our guides:
California surety bond frequently asked questions
How long does it take to get a California surety bond?
Some California surety bonds can be issued instantly. For others, the surety company will need to review your application. This can typically take a few days. Once your bond is issued, the official documents will be sent via mail.
How long do California surety bonds last?
Most California surety bonds are only valid for a specified period of time. If the bond has an expiration date, you will need to renew the bond to keep it active. Bonds for licenses are also needed to keep the license active.
The process for renewing your license will vary. At the very least, it usually involves paying a renewal fee and submitting a renewal application.
Is there a penalty for not getting a surety bond?
In most cases, yes. If you have a surety bond requirement, whether for a license or for a personal reason, then it is against the law not to carry the surety bond. Not carrying a surety bond can result in fines or loss of privileges related to the bond.
For example, with contractor license bonds, the CLSB has a team dedicated to ensuring that any violations are reported and paid.
Get bonded with EZ Surety Bonds
EZ Surety Bonds makes it easy to apply for a surety bond in California. You can get a free quote online today. It takes a few minutes to apply for most surety bond categories. Plus, we work with individuals with all kinds of credit.
