California Contractors License Bonds Explained
In order to legally operate in the state of California, contractors are required to obtain a contractor license bond. The license bond is there to ensure protection to your customers. It also guarantees that you will run your business in compliance with the provisions of Division 3, Chapter 9 of the Business and Professions Code.
Contractor license bonds work like other surety bonds. They are a binding contractual agreement between three parties:
- Principal - the contractor
- Obligee - California Contractors State License Board
- Surety - a bonding company
The bonding company essentially vouches for you, and assumes legal responsibility in front of the License Board for your actions. If you breach the bond agreement, a claim can be made against your surety bond. If the claim is successful you will have to reimburse the claimant.
You can begin your online application now, or consult the sections below which contain more useful information about bonding cost, the process of getting bonded and handling claims. If you need our assistance, we’d be happy to help– simply call us at (877) 514-5146.
Questions about Contractor License Bonds in California
Who needs to post a California contractors license bond?
Any contractor who wants to perform a job exceeding $500 will have to get licensed and bonded to do so. You can perform several jobs– each not exceeding $500– without getting licensed, but keep in mind that it is illegal to split a big project into parts in order to circumvent the licensing process.
In January 2016, the total value of the bond was increased from $12,500 to $15,000. That is to say, $15,000 is the maximum protection the bond offers to a successful claimant.
To get their bond, contractors pay only a fraction of this amount. Typically, it’s no more than 2.5% if your credit report is in order and you have a high credit score. Personal credit score is among the most important factors determining bond premiums, because sureties use it as a way to estimate how likely you are to trigger a claim, and to pay off any claims you incur.
|Bond Type||Surety Bond Amount||Above 700||Between 650-699||Between 600-649||Below 599|
|California Contractor License Bond||$15,000||$112.5-$225||$150-$450||$375-$750||$750-$1,500|
Other factors, such as the availability of liquid assets or extensive industry experience, can also decrease your premium. Read our guide to surety bond cost for more detailed information.
Can I get bonded with bad credit?
If you have a low credit score, or other issues in your credit report, you’re considered a high-risk applicant by surety underwriters, which results in a higher premium. Nonetheless, bad credit applicants rarely pay more than 10% of the total value of the bond thanks to our bad credit surety bonds program.
Remember that you can work on improving your credit and finances, so you get a lower premium when renewal is due.
How do I apply for a California contractors license bond?
The application is simple if you apply with Lance Surety Bonds. Our online application is quick and secure. Submission takes just five minutes and our experts will be in touch with you shortly afterwards, to take you through the whole process.
After you sign an indemnity agreement with the surety and pay your bond premium, we’ll do our best to process your application in just a few business days.
How to become a contractor in California
Besides maintaining a valid California contractor license bond, licensed contractors need to fulfill a number of other requirements before they file their application.
Check out our article on the topic and make sure you fully research all requirements pertaining to your particular license. It’s estimated that 45% of applications are rejected due to incomplete information, so it’s important to be thorough. A full list of requirements is available on the website of the Contractor State License Board.
How are claims handled for contractor license bonds?
Failure to run your business in compliance with all applicable rules and regulations can mean that someone has the right to file a claim against you. If you are in dispute with a client, you should always do your best to reach a settlement outside of court. If a settlement isn’t possible, keep track of all your interactions with the client, so you can present them to the surety.
If the surety believes there is sufficient evidence that the foundation for the claim is not valid, they will offer legal assistance and help you argue your case.