If you are just getting into the construction business in California, one of the things that you might have come across is the contractor license bond. So what is it all about, and how does one go about getting it? To make your journey in the contractor business easier, here are a few things that will help you understand contractor license bonds.
The first step to understanding a contractor license bond is to define it. A contractor license bond is a surety that protects participants in a contract project. It protects the contractor, the client, and the State. Think of it as a form of insurance against negligent business decisions that may negatively impact on the parties involved. For instance, in a situation where a contractor in a home construction project fails to complete a project on time, the homeowner can claim against the contractor bond. However, it is important to note that a contractor bond is different from insurance. One of the main differences between the two is that a surety bond is heavily dependent on a person’s creditworthiness. This means that in case of a claim, the contractor will have to repay the surety company for the claims made. That’s not the case with insurance. The insurer never expects payment from a policyholder in case a risk materializes.
With this clarity on what a contractor bond is, the next thing you need to know is the amounts involved. The amount required for a contractor bond increased from $12500 to $15000 in 2016. Quite an amount, but on the upside, contractors are not required to get a contractor bond for every job that they take. Once a contractor takes a bond, it becomes effective for all the jobs that they take up during the period in which the bond is effective.
So how does one go about taking a contractor bond? Well, you do so through surety agencies, where you pay an annual amount rather than the whole $15000. The amount you pay depends on the agency you choose. One of the lowest cost agencies you can get is Contractorbond.org. Their rates start from as low as $65 a year. You can check them out on https://www.contractorbond.org/. Their fees are heavily dependent on your credit history. The better your credit history, the better the chances that they will give you a lower rate.
Interestingly, Contractorbond.org doesn’t shut out contractors that have bad credit. Instead, it works with them, to help them get better ratings in the future. This company understands that, the real estate market has its ups and downs and even the best-rated companies can find themselves with bad credit at one point or the other. As such, rather than shutting them out, it has a program that allows it to accept up to 99% of contractors with bad credit. By taking advantage of such programs, a contractor can significantly cut on their cost of contractor bonds, and build a better credit rating in the long run. This in turns means more business, and more sustainable revenue growth.