Contractor License Bonds

Contractor license bonds protect the public, not the contractor. They cover financial losses that result from a contractor’s failure to follow state or local licensing laws.

While exact coverage varies by jurisdiction, contractor bonds generally cover:

• Violations of licensing regulations – such as working without a permit, using unlicensed subcontractors, or failing to meet code requirements.
• Negligent or dishonest business practices – including fraud, misrepresentation, or taking payment without completing the work.
• Failure to pay required fees or taxes – like permit fees, sales tax, or licensing renewal costs.
• Failure to complete work as agreed – if the contractor abandons a project or does substandard work that violates state law.
   

If a customer, supplier, or government agency suffers a valid financial loss because of one of these issues, they can file a claim against the contractor’s bond. If the surety pays the claim, the contractor must reimburse the amount.

These protections are a key reason why many states require contractor license bonds — they act as a layer of accountability and a financial safety net for the public.

Contractor license bonds are typically required for individuals or businesses who perform construction-related work that requires a license from a city, county, or state authority. Whether you’re a general contractor overseeing large projects or a specialty contractor handling specific trades like plumbing or electrical work, there’s a good chance you’ll need to get bonded to meet licensing requirements.

Local and state agencies mandate these bonds to ensure contractors operate lawfully, fulfill contractual obligations, and protect the public from financial harm due to negligence or unethical practices. Failure to obtain a bond can prevent you from receiving or renewing your license — and in many jurisdictions, working without one is illegal.

Here are some of the professionals who often need contractor bonds:

• General Contractors – including residential, commercial, and remodeling specialists
• Home Improvement Contractors
• Electricians and Electrical Contractors
• Plumbers and Plumbing Contractors
• HVAC Contractors
• Roofing, Landscaping, and Paving Contractors
• Specialty and Trade Contractors
• Developers working with public infrastructure
• Subcontractors who are independently licensed
   

The exact bond type, amount, and requirements vary depending on your location and the classification of your contractor license. Some states require bonds at the state level, while others issue contractor licenses and bonding requirements through local municipalities. Always check with your local licensing authority or department of labor to determine what’s required in your jurisdiction.

Contractor bonds come in several forms, each serving a different purpose based on the type of license, the scope of work, and the requirements of the regulating authority. The most important distinction is between contractor license bonds and contract bonds.

Contractor license bonds are tied to the licensing process itself. These bonds are often required by a state, county, or city agency to ensure that licensed contractors operate legally and ethically. They protect the public by providing a way to recover losses if a contractor violates licensing laws.

Contract bonds, on the other hand, are project-specific. These include bid bonds, performance bonds, and payment bonds—often required on public works jobs or larger private projects. They guarantee that the contractor will perform the work as agreed and pay all subcontractors and suppliers.

Common Types of Contractor License Bonds

Depending on your trade and location, you may be required to obtain a specific license bond:

• General Contractor License Bond – Required for builders working on a variety of construction projects.
• Home Improvement Contractor Bond – Often required for remodeling, renovation, or other residential work.
• Electrical Contractor Bond – For electricians, typically required at the state or municipal level.
• Plumbing Contractor Bond – For licensed plumbers doing work subject to building code enforcement.
• HVAC Contractor Bond – For heating, ventilation, and air conditioning professionals.
• Roofing Contractor Bond – Required by some jurisdictions for roofing contractors.
• Landscape Contractor Bond – Required in certain states for landscaping professionals.
   

State, County, and City Bonds

Bond requirements are not always at the state level. In many cases, municipalities and counties enforce their own licensing and bonding rules. Contractors working in multiple locations may need multiple license bonds to remain in compliance with local laws.

The cost of a contractor license bond is typically a small percentage of the total bond amount required by the licensing authority. Most contractors can expect to pay between 1% and 3% of the bond amount annually — though this can vary depending on credit history, financials, and the specific bond type.

Factors That Affect Bond Pricing

Several key variables influence the premium a contractor will pay:

• Personal Credit Score: This is the most important factor. Contractors with strong credit often qualify for the lowest rates, while those with poor credit may pay a higher premium.
• Business and Financial Background: Sureties may evaluate business longevity, financial statements, cash flow, and debt levels.
• Bond Amount Required: Higher bond amounts result in higher premiums, though rates may drop proportionally for large bond needs.
• License Type and State Requirements: Different states and license types carry different risk profiles and obligations, which can affect pricing.
• Past Bonding History: A track record of claims or license suspensions may increase your premium or require additional documentation.
   

Sample Premium Estimates

• A $15,000 bond for a general contractor in California might cost $150 to $450 annually with good credit.
• A $10,000 HVAC contractor bond in Arizona could range from $100 to $300, depending on the applicant’s risk profile.
• A $20,000 plumbing contractor bond for someone with bad credit might cost $1,000 to $3,000.
   

Can You Get a Contractor Bond with Bad Credit?

Yes. Lance Surety offers access to special bad credit surety bond programs designed to help contractors with less-than-perfect credit obtain the license bond they need. Premiums are higher — typically ranging from 5% to 15% — but bonding is still possible with the right documentation.

Are Financing Options Available?

Yes. Many contractors choose to finance their bond premium through monthly payment plans, especially for higher bond amounts. Lance Surety Bonds can connect you with premium finance options if needed.

Want a Custom Quote?

Use our online quote tool to get a fast, personalized premium estimate based on your credit profile, business details, and license type.

Getting a contractor license bond is a straightforward process when you work with an experienced surety agency. Here’s what to expect when applying for your bond.

Step 1: Determine the Bond Amount Required

Before applying, you need to know the exact bond amount required for your specific license type and location. This is usually set by your state or local licensing authority. If you’re unsure, contact the licensing agency directly or check their website for requirements.

Step 2: Complete an Application

Next, fill out a contractor bond application. You’ll be asked for information such as:

• Legal business name and structure (e.g., sole proprietor, LLC)
• State and license type
• Owner’s name and contact info
• Social Security number (for credit check)
• Estimated bond amount
   

You can start your application online through Lance Surety’s secure portal.

Step 3: Submit Required Documentation

In many cases, only a credit check is needed to receive a bond quote. However, for larger bond amounts or higher-risk applicants, you may be asked to provide:

• CPA-prepared or internal financial statements
• Proof of business licensing or incorporation
• References or resumes
• Proof of workers’ compensation or general liability insurance
   

Step 4: Get a Quote and Sign the Bond Agreement

After underwriting is complete, you’ll receive a bond quote — typically within 24 hours. If you accept the terms, you’ll need to sign an indemnity agreement and pay your premium.

Step 5: Receive and File Your Bond

Once your payment is received, your bond will be issued and delivered to you. Some states require the original signed bond to be mailed to the licensing authority, while others accept digital filings. We’ll help you navigate that process.

Step 6: Keep Your Bond Active

Most contractor license bonds are valid for one year. Renew your bond before the expiration date to maintain compliance and avoid interruptions in your license status. We’ll notify you when it’s time to renew.

Bonding capacity refers to the total dollar amount a contractor can be bonded for at any one time. It’s typically broken into:

• Single limit: The maximum bond amount allowed for one project.
• Aggregate limit: The total value of all bonded projects combined.
   

Your bonding capacity is determined by the surety company based on:

• Credit score and financial history
• Business experience and work history
• Cash flow and current obligations
   

Contractors can increase their capacity over time by maintaining good financials, completing bonded projects successfully, and working with a knowledgeable surety agent.

While contractor bonds and insurance may seem similar, they serve very different purposes:

• Contractor Bonds (like license or performance bonds) protect the public or project owner. If a contractor violates licensing laws or fails to meet contractual obligations, the surety pays the claim — and then seeks reimbursement from the contractor.
• Insurance, on the other hand, protects the contractor. It helps cover unexpected losses like property damage, injury, or theft, and does not require repayment if a claim is paid.
   

Key differences:

For many contractors, both are required — bonds to get licensed and win contracts, insurance to protect their business and assets.

While contractor license bonds protect the public, avoiding claims altogether is in your best interest. Claims can damage your reputation, raise your bond premium, and even threaten your ability to stay licensed.

Common Reasons for Claims

Most claims against contractor bonds result from violations of licensing law or unethical business practices. These might include:

• Abandoning a job without completing the work
• Failing to pay subcontractors or suppliers
• Performing substandard or non-code-compliant work
• Misrepresenting qualifications or project scope
• Violating terms of the contractor license
   

How to Avoid Claims

Contractors can reduce the risk of claims by following best practices:

• Communicate clearly with clients about project scope, timelines, and expectations.
• Follow state and local regulations, including licensing rules and building codes.
• Pay all subcontractors, vendors, and suppliers on time.
• Document changes and agreements in writing, especially when project scope or pricing changes.
• Resolve disputes proactively before they escalate to legal or financial claims.
   

What to Do If a Claim Is Filed

If you’re notified of a potential claim:

1. Contact your bond agency immediately – early involvement gives you more options to resolve the situation.
2. Review the complaint – determine whether the claim has merit and if it can be settled before formal investigation.
3. Cooperate fully with the surety – provide all requested documentation and updates.
4. Work toward resolution – in some cases, making repairs, issuing refunds, or correcting paperwork can satisfy the obligee and avoid further action.
    

The best strategy is prevention—but knowing how to respond can minimize damage and keep your license and bonding eligibility intact.

What’s the difference between a contractor license bond and a construction bond?

A contractor license bond is required to obtain or maintain a contractor’s license and ensures compliance with state regulations. A construction bond (like a performance or payment bond) is tied to a specific project and guarantees contract performance.

Can I get a contractor bond with bad credit?

Yes. Many sureties offer programs specifically for applicants with low credit scores. You may pay a higher premium, but approval is still possible—especially with strong financials or business history.

Do contractor bonds expire?

Yes. Most contractor bonds are tied to the license term and must be renewed annually or as required by your state licensing board.

How do I verify if I’m bonded?

You can contact your surety provider or check with your state’s contractor licensing board, which often maintains public records of licensed and bonded contractors.

What is the required bond amount in my state?

Bond amounts vary by state and license type. You can use our state-by-state bond guide to find the specific requirements for your location.

Is a license bond enough for public works projects?

Not usually. Public projects often require additional construction bonds such as bid, performance, and payment bonds—especially if the contract exceeds a certain value.

How much does a $10,000 contractor bond cost?

Rates vary, but most contractors with good credit can expect to pay $100–$300 annually for a $10,000 bond. Poor credit may result in higher premiums.

How much is a $25,000 contractor bond?

Premiums for a $25,000 bond generally range from $250–$750 for applicants with strong credit. Rates may increase for those with credit issues or incomplete documentation.