Contractor License Bond FAQ

  1. What is a license bond?
  2. How much does a license bond cost?
  3. What does my credit have to do with getting a license bond?
  4. Why do I need a license bond?
  5. What does the license bond cover?

1. What is a license bond?

A license bond is a type of surety bond that is required by a city/state/town or some government entity as a prerequisite to receiving a specific business license. It serves as a contract among at least three parties:

A license bond is a guarantee from a Surety to the Obligee that a Principal will comply with the underlying laws and regulations that apply to that professional license.

For the licensed professional, the license bond represents an unsecured line of credit to be used if a legitimate claim is filed against their bond. This money can be used to immediately cover the costs of the claim.

For the consumer, the license bond serves as a form of protection. The bond serves as a line of credit to cover any damages or costs incurred by the consumer due to the licensed professionals negligent or fraudulent actions.

2. How much does a license bond cost?

The cost of a license bond varies greatly depending on the state, type of business license, experience and credit history. Typically bond premiums for good credit cost 1-3% of the total bond amount. If your credit is less than perfect, the premium can start as low as 7.5% of the bond amount. We work with multiple top-rated surety companies to provide you with the lowest rates for your situation.

3. What does my credit have to do with getting a license bond?

If a claim is filed on your bond because something goes wrong, the surety must financially cover the entire claim amount. Since the surety is financially backing you as a licensed professional, the surety is interested in your ability to repay them for potential claims. The surety uses your credit score and history as a measurement to predict your ability to pay them back in the case of a claim.

4. Why do I need a license bond?

In order for many licensed professionals to maintain an active license, they must acquire a License or Permit Surety Bond. Many obligees (usually States, Cities, Towns or Government Entities) require licensed professionals to obtain surety bonds as a form of consumer protection.

5. Is the bond quote and payment process immediate?

A license bond generally covers the clients of the bonded licensed professional. For example:

If you were to purchase a vehicle (new or used) from a dealership, the dealership expects you to make good on your payments. On the other side, you expect the dealership to uphold their end deal by making sure the car is licensed with the DMV and the title is given to you once the car is paid off. If the dealership does not follow through with their obligations you could be covered by the surety bond for all damages/costs you incur as a result of the dealership's negligence and/or misdeeds. In this respect, you can think of the bond as a form of consumer protection.