Contractor bonds (also known as contractor license bonds, or contract bonds) are legally binding agreements between three parties: licensed contractors, the government agency responsible for regulating local construction activity, and a surety company.
The government agency is the Obligee and establishes the obligations that the contractor (the Principal) must follow. The surety (also called bonding company) issues the bond guaranteeing the performance of the contractor.
Contractor bonds are required in most states as part of the licensing process for general contractors and specialty subcontractors such as plumbers, electricians, and HVAC professionals. Some states where you need a surety bond include California, Alabama, Oregon, and Florida. Most states handle contractor licensing directly while some allow local municipalities to handle licensing and regulations.
When the surety company issues the bond, they provide the government agency a guarantee that the general public will receive payment for financial losses resulting from a violation of the statutes and regulations set forth by the contractor license.
If the contractor fails to meet the obligations set out by the government agency, the surety will pay out any damages up to the bond amount. The contractor is ultimately liable for the losses and is legally required to reimburse the surety company for any damages paid under the bond.
Contractor surety bond costs vary depending on the total bond amount and the premium rate. The government agency sets the required bond amount and the surety company determines your premium rate, which is the percentage of the total bond amount you pay as the premium.
Premium rates for contractor bonds typically cost between 1% and 10% of the total bond amount. Most contractor bonds mandated by state agencies require credit checks. Bonds required by local municipalities with a total bond amount under $25,000 do not usually require credit checks, but the surety bond company ultimately decides how to underwrite the bond.
During the application process, the surety company may evaluate your credit score, financial strength, and industry experience. Applicants with good credit generally receive the lowest rates, however, bad credit will not prevent you from securing a contractor bond. EZ Surety still offers competitive rates to individuals with low credit scores or other financial issues.
Below are the lowest premiums EZ Surety has issued for contractor surety bonds in popular states.