What is a License and Permit Bond?
License and permit bonds are a type of surety bond, sometimes referred to as ‘commercial bonds’ or simply ‘license bonds’. Whatever you call them, license and permit bonds are required by government agencies as a pre-licensing requirement for a number of different businesses operating within a range of regulated industries.
These bonds represent agreements made between three parties—the business owner, known as the principal; the regulating body, known as the obligee; and the bonding or surety company, known as the surety.
A license and permit bond guarantees that a business will operate in accordance with federal, state, or local laws and regulations. Each license bond is specific to one industry and protects customers and/or the state from damages.
Most commonly, license bonds act as a financial guarantee which protects governments and consumers from fraudulent practices committed by the business that is bonded. In any industry that requires bonding, each business must be licensed and bonded, thus providing their potential customers with appropriate insurance before they are allowed to legally operate.
Lance Surety Bonds offers a comprehensive range of license and permit surety bonds in all 50 states.
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Do I Need a License and Permit Bond?
Whether you need a license and permit bond depends on the state in which you wish to open your business, the business you wish to run, and the scale at which you wish to operate.
As licensing requirements are often set by state and municipal governments, you should check with your local authority to see whether you need a license and permit bond to obtain your license. Equally, you can check our list of commercial surety bonds below to see whether your business is listed. It is important to ensure that you post the correct type of bond to meet your specific bonding requirements.
Which License Types Require a Bond?
There are many types of license which require the posting of a bond. In general, these are licenses which relate to businesses in which customers or the state are at risk of significant losses in the event of malpractice on the part of the business owner.
These include a range of business types, such as car dealers, auctioneers, companies which transport goods by sea, and the offices of public officials. This is true for sole traders, small business, and large corporations alike.
However, the exact licensing requirements are usually set at state level, or within individual municipalities, and can vary greatly across the United States. Therefore, it is sensible to check with your local government to see whether your license requires a bond.
How Much Does a License Bond Cost?
Each license bond offers protection up to a certain dollar amount, known as the total bond amount, or bond value. Total bond amounts will vary significantly, depending on the industry, the size of the business, and the state laws regarding the type of necessary bond.
Premiums—or what the bonded entity must pay to get a license bond—also vary based on several factors. The most important factor is the applicant’s credit score. A premium is a certain percentage of the total bond amount required, calculated on a case-by-case basis.
The rate that applicants can expect to pay, which is a percentage of the overall bond value, generally corresponds to the applicant's credit history. The higher their credit score, the lower the rate tends to be, whereas the lower their credit score, the higher the rate tends to be. However, a poor credit score can occasionally be overlooked if evidence is given, for example, of possession of liquid assets.
Whilst the exact rates will vary between applications, applicants with average to good credit or better which is represented by a FICO score above 650, can often expect to be offered a rate between 1% and 5% of the total bond value. That means that for a bond worth $50,000, applicants might pay a premium between $500 and $2,500.
For a more specific estimate, you can apply for a free bond quote today.
Can I Get a License and Permit Bond with Bad Credit?
Sureties treat an applicant’s credit score as the most important piece of information when calculating premiums. Personal credit score is so important that there are whole groups of surety bonds—such as contract bonds—which are impossible to get with bad credit.
Fortunately, this is not the case for most types of license and permit bonds and for the vast majority of applicants. It does mean, however, that business owners with spotty credit histories will pay slightly higher premiums. Lance Surety Bonds has an excellent bad credit surety bonds program, which can help you stay in business despite your credit issues.
Those underwriting in the surety industry tend to designate applicants with a FICO score below 650 as “higher-risk”. These applicants with “bad credit” will often be offered a rate between 5% and 10% of the overall bond value. That means that, for a bond worth $50,000, it is common for applicants with bad credit to pay between $2,500 and $5,000.
If you are looking to apply for a surety bond, but are concerned by bad credit, you should start by applying for a free quote. Our surety experts will work to find you the best rates, no matter your credit history.
Additionally, if you still have questions, then you are always welcome to contact us on 877.515.4146, or leave us a message on our chatbot.