A California Contractor’s License Bond is an important surety requirement of the Contractor Services Licensing Board to protect consumers and ensure licensed contractors abide by state law. Find out more below with these most frequently asked questions:
What is a Contractor’s License Bond?
Contractor’s License Bonds are commercial surety bonds designed to ensure contractors abide by state licensing rules and statutes, and to safeguard clients, the public, and governments against financial harm caused by noncompliance of licensed contractors with rules and regulations. Such bonds may be issued both for residential and/or commercial work.
These differ from performance or bid bonds – which you can read about here; instead, they cover compliance failures such as not paying suppliers and workers or failing to meet project specifications. They can either be purchased independently by contractors, or as a condition for obtaining state or local licensing for construction industry activities.
Why Do I Need a Contractor’s License Bond?
It is a financial guarantee designed to ensure contractors operate legally and ethically. It provides compensation to customers or the public who are wronged by any state law violations committed by licensed contractors, such as failure to complete work as promised, mishandling materials improperly, or theft/fraudulent activities by licensed contractors.
Bonds provide three-party protection to employees, subcontractors, and suppliers of licensed contractors against any possible unethical actions by working together – unlike insurance which only protects two parties at once.
Contractors should be mindful that claims against their Bond can severely impact their credit, and are ultimately liable for repaying any payout made to claimants. To prevent a possible claim from materializing, contractors are advised to communicate directly with customers and resolve issues before they become a claim.
As part of the application process for a Contractor’s License Bond, the surety company will conduct a soft credit check without impacting your score. Due to their relatively low-risk profiles, they can typically even offer bonds for contractors with less-than-perfect credit histories.
How Much Does a Contractor’s License Bond Cost?
Your bond amount depends on your personal and business financial information, including your credit score. A higher credit score can result in lower contractor-bond rates; similarly, working without claims against it for an extended period will also bring down costs. The California State Licensing Board requires you to secure an amount equal to the highest licensure level you wish to pursue.
By taking out a bond, you are making an explicit promise to uphold all applicable regulations and laws. This creates a mechanism where the public or CSLB may file claims against your surety to receive financial compensation resulting from unethical conduct during client projects; these claims will be paid out using funds from your surety policy – so make sure it stays current!
If you are uncertain of your eligibility to obtain one, don’t fret; many contractors have managed to secure one even with less-than-ideal credit histories. Working with the right bonding agency is key – one that can find a suitable solution tailored specifically to your situation.
Once you purchase one, Jet will electronically file it with the CSLB for you, so that it may serve as proof of liability insurance when performing work for customers. In addition, you’ll receive both an electronic copy for your records as well as a receipt once payment has been completed – an invaluable service provided by Jet and which every licensed contractor should utilize as soon as they purchase a bond.
How Do I Get a Contractor’s License Bond?
California requires contractors looking to work in the construction industry to obtain a Contractor’s License Bond as part of the licensing process. It acts as a guarantee that they will abide by all state laws and regulations concerning their business activities, and compensate customers whose financial damages were caused by actions taken that violate licensing regulations.
The cost of bonds will differ for every applicant and is largely determined by factors like their credit score and history as a licensed contractor. Applicants with higher credit scores tend to pay less for the bond; bond amount also plays a factor.
Once purchased, bonds must be filed with the CSLB (click here) as part of the licensing process. Once filed, CSLB will issue the contractor their license number; annual renewal is mandatory and should be paid in advance or otherwise, it will become delinquent and prevent further license applications from being approved by them.
When applying for a Contractor’s License Bond, it is crucial that all applicants fully comprehend all requirements and steps involved in the process. Being better informed will allow applicants to complete this step more quickly and get started with their business faster.
As stated above; to summarize, Contractor’s License Bonds (CLBs) are mandatory in order to secure a license from the CSLB and make this step of their project more successful. Easy and inexpensive to secure, they provide proof of eligibility when applying for other forms of surety bonds such as Performance or Payment Bonds, and should be invested in immediately.
