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License & Permit Bonds & Contractors License Bonds Overview
Before those in certain industries can be legally licensed, they are required to get a license and permit bond. These commercial bonds are intended to protect consumers by providing a financial incentive for bonded businesses to follow local, state and federal regulations.
What Contractors License Bonds Do
A contractors license bond is a type of license and permit bond required for contractors to obtain a license. A bond binds together three parties: the principal, the obligee, and the surety.
- The principal, or the contractor, is required to purchase the bond.
- The obligee is the consumer or the state agency who is protected by the bond. The obligee usually requires the bond.
- The surety is the surety company who provided the bond to the principal and sets the terms of the bond.
- If the principal does not follow the terms of the surety, the obligee can make a claim on the bond as a way to obtain compensation for any damages incurred. If the claim is found to be valid, the bond will be used to cover costs, and the contractor will be required to pay for a new bond in order to obtain a new license.
There is a common misunderstanding that a contractors license bond is intended to protect a contractor. However, purchasing a surety bond is not the same as purchasing traditional insurance. A contractors license bond is intended to protect those working with the contractor from breaking laws and regulations, which are included in the terms of the bond. In the case that the contractor follows laws and regulations, there should be no claims and no payout from the bond.
Considerations for Contractors License Bonds
If you are required to obtain a contractors license bond in order to get your contractors license, keep in mind that several factors can affect the price of your bond and your ability to get one.
- Your Credit History – With good credit, applicants typically pay from one to five percent of the bond amount. With bad credit, you may need a bond professional to help you find the best rate.
- Your Claim History – The more violations you have, the more expensive your bond will be.
How to Get Started
The bond professionals at Fusco & Orsini are here to help you obtain a bond for your business at the best price for you. We can find top options for you based on on your credit and claim history. Our Time Saving Tools, below, can help you get in touch with us. Schedule a call with us at a time that is convenient for you, or contact us online.