What Is a Tennessee Contractor License Bond?
A Tennessee contractor license bond is often a licensing criteria for contractors in Tennessee. The bond may be required on the state or local level, and it helps to ensure that an applicant is qualified to conduct construction work.
Licensing authorities require the contractor license bond to protect the interests of the general public from unethical contractors. Having a bond means that your contracting company is safe to do business with. Harmed parties can make claims on your bond to get compensation in case you have failed to meet your obligations.
The Tennessee contractor license bond functions just like all surety bonds. There are three entities that enter into a contract. The principal is your contracting business that has to get bonded. The obligee is the local or state authority that conducts the licensing. The surety is the third party that provides the bond.
Questions about Contractor License Bonds in Tennessee
Who needs to obtain a Tennessee contractor license bond?
In most cases, Tennessee contractors do not need a bond to get their state license. A bond may be necessary if they need a large amount indemnified, or if a parent company is not able to supply a Guaranty Agreement. The exceptions are home improvement contractors, who must get bonded on the state level.
Local authorities may also require contractors to undergo a licensing and bonding procedure. In cities like Memphis, Johnson City and Knoxville, contractors need to get bonded. Before you launch your business, make sure to check with all relevant bodies what the licensing criteria are.
How much does a Tennessee contractor license bond cost?
The bond amount that you are required to obtain is one of the main factors that affect your bond price. It is set by the state or local authority that will license you. You can see some bond amounts in Tennessee in the table below.
The bond premium is only a percentage of the surety bond amount you have to get. In the typical case, you are likely to pay between 1% and 5% of the bond amount if your finances are in good shape. In case you have to get a $10,000 bond, the premium may be only $100-$500.
|Bond Type||Surety Bond Amount||Above 700||Between 650-699||Between 600-649||Below 599|
|Memphis contractor license bond||$25,000||$188-$375||$250-$750||$625-$1,250||$1,250-$2,500|
Tennessee home improvement contractors bond
Johnson City building license bond
Knoxville electric contractor bond
The exact percentage you have to cover depends on your personal and business financials. When you apply with a surety, it needs to take a close look at your personal credit score, business finances, assets and liquidity, and professional experience. This way, it can judge how risky it is to provide you with bonding. If your overall candidature is solid, you can expect a lower bond price.
For more details on how your bond price is formulated, check out our surety bond cost page.
Can I get bonded with bad credit?
Problematic finances can be an obstacle for your bonding. Lance Surety Bonds runs its Bad Credit Surety Bonds program to provide bonding options for contractors with low credit scores, tax liens, bankruptcies, or civil judgements.
Since the bonding risk is higher, the premiums are in the range of 5% to 10%. Still, you are guaranteed a top rate with us. We work with a number of A-rated, T-listed surety companies. This allows us to offer not only secure bonding, but also a diverse set of bonding options that can match your particular case.
How do I apply for my contractor license bond?
You can start your bonding process today. Just apply online for a free Tennessee contractor license bond quote. If you want to know your exact bond price, you should submit all the requested paperwork together with your application.
If you need more details about how bonding works, make sure to consult our How to Get Bonded page.
Have more questions? Just call us at (877) 514-5146 to get help from our bonding experts.
What happens if there is a claim against me?
Unlike insurance, your Tennessee contractor license bond does not protect your contracting business. Instead, it works like an extra layer of guarantee that your customers’ interests will be safeguarded.
If you fail to abide by applicable laws, you can face a claim on your bond. Harmed parties can ask for a compensation up to the penal sum of the bond. If the case is proven, you will have to comply and reimburse them. Initially, your surety covers all costs. However, the bond language defines that you have to repay them in full. Since bond claims are a serious financial and reputational threat, it’s best to avoid them.
How do I get a Tennessee contractors license?
All contractors who want to bid on projects above $25,000 as a prime contractor– or as an electrical, mechanical, plumbing, HVAC, roofing and masonry contractor with a project portion above that sum– have to get licensed. The process is regulated by the Tennessee Department of Commerce and Insurance (DCI). The criteria include passing an exam, providing all needed paperwork on your personal and business finances, business entity documents, and in some cases, a bond.
Home improvement contractors need a license if they operate in the Bradley, Davidson, Haywood, Hamilton, Knox, Marion, Robertson, Rutherford, and Shelby counties. The license is needed for projects between $3,000 and $25,000. The licensing is done by the DCI.
Additionally, you may need a license from your local authorities. The Tennessee contractor license requirements will vary, depending on your location and your exact specialty. In some cities and for some trades, you will have to get a contractor license bond.