Texas surety bond basics
Let’s start by defining the basics of a surety bond. Surety bonds are three-party contractual agreements between a Principal, an Obligee, and a surety company. The bonds guarantee that the principal meets some performance standards.
In most cases, the obligee sets a requirement that the principal needs to get a surety bond. The principal then goes to a surety company, which will issue the bond.
By issuing the bond, the surety company makes a financial guarantee to cover any claims against the bond. If the principal violates the conditions of the bond agreement, damaged parties can file a claim against the bond. If a successful claim is made against the bond, the surety company will pay out financial damages to the affected party. The principal is ultimately responsible for repaying the surety company for any costs.
For more information on how surety bonds work, check out our consumer’s guide to surety bonds.
How much does it cost to get bonded in Texas?
If you are required to get a Texas surety bond, you will likely wonder how much it will cost. To determine how much you will need to pay, you first need to look at the required bond amount set by the obligee.
The required bond amounts can vary based on the bond. Different obligees will establish different bonding requirements based on the risk of the bond. Some bonds are riskier than others and thus warrant a higher amount of coverage.
As a principal, you do not pay the entire bond amount. Instead, you only pay a premium, a small percentage of the total coverage, similar to an insurance policy.
This premium will typically range between 1% and 15% of the bond amount. For example, if your premium is 1% of the bond amount and you need a $10,000 bond, your premium will be $100.
How the surety company will underwrite your bond will depend on the type of bond. For some bonds, the surety company can issue the bond without looking at your personal qualifications.
For other bonds, a more extensive underwriting process is required. With these, the surety will look at a range of factors, including your credit score, financial history, and industry experience. The better your qualifications, the better premium you will get for a bond.
If you happen to have a poor credit history, you will still be able to get a Texas surety bond. To do so, you will need to find a surety company with flexible bonding options. You will also have to pay a slightly higher premium.
EZ Surety Bonds offers competitive rates to principals of all standing. Improving your credentials can get you a better rate, but you’re in good hands with us regardless of your standing.
Texas surety bond requirements
Surety bonds can be required for a variety of businesses and individuals. These bonds can fall into one of the following categories:
License and permit bonds
These are the most common types of surety bonds. They are required for businesses and professionals as part of the requirements to get a license. For instance, if you want to sell motor vehicles you will need to get a surety bond before you can get an auto dealer license.
Contract bonds
Contract bonds contain a mix of surety bonds that are often required on large public projects. The bonds protect the project owner from insufficient performance on the part of the contractor. They also ensure subcontractors, laborers, and suppliers are paid on time.
There are three common types of contract bonds:
- Bid bonds: Guarantee that the contractor can follow through on the bids they submit for projects. They also ensure that the contractor does not back out of any bids.
- Performance bonds: Protect the obligee when the contractor fails to perform as required by the contract.
- Payment bonds: Guarantee that the contractor pays all subcontractors, laborers, and suppliers as agreed upon in the contract.
Court bonds
Court bonds are required in the State of Texas for a variety of different legal proceedings. For instance, you will need an appeal bond to appeal a court decision. Or, you may need a court bond if you want to become the legal guardian for a minor or want to operate as the fiduciary for an estate.
Commercial surety bonds
Commercial surety bonds are similar to license and permit bonds. They are required by state entities to protect public interests. Bondholders must adhere to all regulations and codes. Common businesses that need to purchase commercial bonds are liquor stores and lottery ticket sellers.
Common Texas surety bonds
Below are some of the most popular surety bonds in the State of Texas:
Texas contractor license bonds
Contractor license bonds are one of the most common surety bonds in Texas. Unlike many other states, bonds are not required at a state level. Instead, the bonding requirement is set by local municipalities. Not every city in Texas will require bonds from contractors but many will.
Contractor license bonds are put into place to ensure that contractors fulfill obligations to their clients. They also ensure that the contractor meets the regulations set by the local municipality. Specifically, contractors must complete projects as agreed, obey building codes, and pay their subcontractors in full and on time.
Because the bonding requirement varies by location, so will the process to obtain your bond. Some of the steps you should be prepared to take include:
- Register your business with the secretary of state
- Provide proof of education and experience
- Obtain general liability and workers compensation insurance
- Pass a business and knowledge exam
- Submit an application form and licensing fee
While there is no statewide bond requirement, it is often useful to have additional protection to provide reassurance to contractor clients. It is for this reason that many contractors choose to get bonded. These bonds can provide protection and reassurance to customers that you will perform the work agreed upon.
Contractor license bonds are most common among contractors working on projects performed on a customer’s property. For instance, landscaping, home improvement, appliance repair, handiwork, and pool repair.
Texas motor vehicle dealer bonds
The Texas Department of Motor Vehicles requires auto dealers to get a professional license before they can sell vehicles in the state. Part of the licensing requirement is to get a $50,000 auto dealer bond.
The bonds guarantee that dealers comply with all regulations as detailed in the Texas Transportation Code. If the bondholder engages in unlawful or unethical business practices, they will be liable for claims against the bond.
Texas sales tax bonds
If your business is required to collect sales tax on any of the items that you sell, you must get a Texas sales tax bond before you can apply for a business license. Specifically, any business that sells more than two taxable items in a 12-month period is required to get bonded.
The bonds are put in place to ensure that you pay all taxes due to the Texas Comptroller of Public accounts on time.
Texas notary bond
Notary publics are people that received a state permit to act as legally binding witnesses for specific business transactions and legal procedures. Some of these include making sworn statements, transferring vehicle titles, or creating wills and trusts.
Notary bonds guarantee that notaries follow all applicable laws and notary rules. For example, always requiring a valid ID from the individuals signing the documents. Before you get the Texas notary permit, you will need to get a bond with a $10,000 coverage.
Texas collection agency bonds
In the State of Texas, debt collectors and credit bureaus must get a $10,000 collection agency bond before conducting their business. The Texas Secretary of State is responsible for regulating debt collection activity in the state, as well as reviewing Third Party Debt Collector Bond applications.
Debt collectors include any entity that engages in debt collection, selling collection systems, devices, or scheme forms. Attorneys fall under this definition only if they have non-attorney employees who regularly solicit collection debts or contact debtors for collection purposes.
Texas mixed beverage sales tax bonds
Businesses in Texas that sell alcoholic beverages on-premises are required to pay a mixed beverage gross receipts tax and a mixed beverage sales tax that is collected from customers. To ensure that all amounts are paid to the Comptroller’s office on time, these businesses must get a surety bond.
The minimum amount of bond coverage that you need to get depends on your type of liquor license. You’ll want to make sure to check the specific requirements for your license type.
Texas surety bond frequently asked questions
What is the process to obtain a bond?
Getting a Texas surety bond is simple. You only need to find a reliable surety company and submit an online bonding application. Depending on the bond, it may be issued instantly following your payment.
For other bonds, you can submit an online application and the surety will review the details to give you a quote for the bond. You can then sign the indemnity agreement, pay for the bond, and you’re good to go.
Do Texas surety bonds expire?
Most Texas surety bonds do not last indefinitely. There will be a specified term for the bond. If the bond is required for a license, the bond will typically expire when the license expires.
To keep your bond active you will need to renew the bond. The process for renewing your bond will depend on the specific type of bond. Usually, this involves submitting a simple renewal application and paying a renewal fee. Other times, the bond may need to be re-underwritten, which includes a reassessment of the applicant’s credit and financial standing.
When do I have to pay for my surety bond?
Most surety companies will require you to pay the bond premium upfront before they will issue the bond. In some cases, companies may offer financing for applicants with poor qualifications that would otherwise not be able to afford the bond, although this is not as common.
Get bonded with EZ Surety Bonds
EZ Surety Bonds makes it easy to apply for a surety bond in Texas. 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.
