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Many license and permit bonds can be issued instantly online. The cost typically falls between $50-$100. However, the price is often just 1% of the bond amount, so a larger bond amount could mean a higher premium.
While most license and permit bonds are instant issue, some still require underwriting. This means that a bond application must be submitted to an underwriter who will then examine personal financials or credit history to determine the bond cost. Other factors taken into consideration for underwritten bonds include the bond's amount and risk associated. For instance, bonds with a history of claims filed against them are seen as riskier.
Contract bonds (commonly referred to as construction bonds) require underwriting, as all project-based bonds are underwritten. Contractors with good credit can often receive their bond for as little as 1-3% of the bond amount. For example, a contractor with good credit needing a $25,000 bond could pay as little of $250 for their bond.
Contractor bonds are a legally binding document binding three parties together: the principal, the obligee, and the surety.
A contractor bond is a specific type of surety bond that offers financial security to government entities, project owners and consumers. Contractor bonds function as a guarantee contractors will follow the laws set for a specific jurisdiction.
There are two main categories of contractor bonds: license and permit bonds and contract bonds, otherwise known as construction bonds.
License and Permit Bonds
License and permit bonds ensure that contractors adhere to all applicable rules and regulations concerning their line of work. They also provide protection to consumers and the government entity requiring the bond (obligee) in the event a contractor causes damages or fails to adhere to all codes.
Right of Way Permit Bonds
Right of way surety bonds guarantee the performance of work at or involving a publically owned right of way. A right of way can refer to any type of public property where contractor work might be performed. This work could include installations, fixes or removals of public systems such as signals or water pipes. Often, these bonds could be a requirement of a permit that must be obtained.
Contract or Construction bonds
Contract bonds guarantee that contracts for specific projects will be fulfilled. Per the name, construction bonds can often be found within the construction industry. These bonds are project-specific, meaning that these bonds will be specific to whatever project is requiring them.
In the event a contracted party fails to uphold its obligations according to the bond, a claim can be made by the project developer to recover from any damages or financial losses.
Bid bonds are required when contractors file bids on construction projects to ensure the bids are serious and the contractor possesses the finances required to complete the project. Bid bonds are a form of financial security for project managers or those in charge. Without a bid bond, any contractor bid would be automatically disqualified.
Performance bonds are required when a contractor wins a bid on a construction project. This bond guarantees that contractors will complete construction projects in accordance with their contract and all applicable legislation.
Payment bonds ensure subcontractors, suppliers and additional employees are paid in accordance with their contract. They are often required along with performance bonds and could be issued on the same bond form. Payment bonds reassure workers negotiating construction contracts that they will be paid in the agreed-upon amount and at the agreed-upon time.
Choose the type of bond you need.
Before purchasing a surety bond, check with the obligee to ensure the correct bond amount is obtained. Most surety bond applications require additional information, such as license type, business contact, owner information, etc, so be sure to have all necessary information available.
Our interactive bond finder tool can help! First, just specify if the bond is for a license or a project. Then select the state the license or project will be for. Next, a list of bonds that match that specified criteria will pop up and the correct bond can be selected.
Call 1 (800) 308-4358 to talk with a contractor bond expert today.