What do you need to build a successful career as a contractor? In addition to the right tools, equipment, skillset, and knowledge of your trade, a contractor license and bond are critical to your business.
Your contractor license shows that you know what you’re doing, and are a professional in your field. Surety bonds are a security deposit that you place with your Contractors State License Board that promise you will comply with your state license laws.
Just like the name implies, a license bond and your contractor license go hand-in-hand.
When Should You Buy Your Contractor License Bonds?
If you are applying for a new license, reinstating a suspended license, or renewing your existing contractor’s license, you will need to have license bond. The exact steps to getting licensed and bonded may vary from state to state, so be sure to check with your contractor license board for details. For illustration purposes, we will use the state of California guidelines below.
When Applying (or Reapplying) for a New License
Part of the process of applying for a new contractor’s license includes obtaining your license bond. If you are a first time applicant, the timeline could be a bit confusing. When exactly in the application process do you need to buy your bond?
If you are applying for a contractor’s license in California, the CSLB license process goes like this:
- Complete your license application.
- Submit the application, application fee, and required forms to the California State License Board.
- If you are required, take the examination.
- Obtain license bond.
- Submit license fee, contractor bond, and proof of workers’ comp insurance (or an exemption certificate if you have no employees)
Your state may have a different process than California. For the exact steps required to obtain a contractor’s license in your state, contact your specific state license board.
For more information regarding obtaining a license in California, check out the Blueprint for Getting Licensed by the CSLB.
When Reinstating a License
If you want to reinstate or reissue a contractor license that has been revoked, you will need to obtain a contractor license bond. According to the CSLB, an applicant or licensee must have a contractor’s bond on file for the “issuance, re-issuance, renewal, or restoration of a license.” License bond requirement for a license that has been suspended may be different compared to a new license. For example, your bond may need to be for a different amount, and you may also be required to obtain a disciplinary bond for a prior revoked license, as well. Your state board can give you the specific details on what your bond requirements are to have a suspended license reinstated, but plan on having a license bond in place before hand.
When Renewing an Active License
When it comes time to renew your contractor’s license, you will need to make sure your bond is current. Even though you obtained your contractor license and your license bond at the same time, that doesn’t mean they will be renewed on the same cycle. Be sure to keep an eye on your bond renewal date, so you aren’t faced with any unexpected surprises when it comes time to renew your license. If you’ve neglected to keep your bond current, it may prevent you from renewing your license.
License bonds may be issued for whatever length of time you and your bond company or insurance agent arrange, generally with a period of one to three years before it is renewed or cancelled.
Why Contractors Need a License Bond
Obtaining a bond and keeping it current is an important part of building a successful career as a contractor. Your bond is a selling point that differentiates you from the unlicensed and unbonded competition out there. When you are bidding on a project, you can remind potential clients of the benefits of working with you as a bonded and licensed professional.
“The [license] bond is filed for the benefit of consumers who may be damaged as a result of defective construction or other license law violations, and for the benefits of employees who have not been paid wages that are due to them.” - California State License Board, Business and Professions Code Section 7071.6
What are the Requirements for a Contractor’s Bond?
In the State of California, the amount of a contractor’s license bond increased in January of 2016 to the amount of $15,000. Here are some of the additional bond requirements you should know about:
- The bond must be written by a surety company licensed through the California Department of Insurance.
- The business name and license number on the bond must correspond exactly with your business name and license number on the CSLB's records.
- The bond must be written on a form approved by the Attorney General's Office, and have the signature of the attorney-in-fact for the surety company.
- The bond must be received at the CSLB's Headquarters Office within 90 days of the effective date of the bond.
Where Do I Get a Contractor License Bond?
Your state contractor board does not issue bonds. Bonds need to be obtained through an insurance agent or private holding company licensed by the State Department of Insurance. You can check with your state’s Department of Insurance to see if the surety bond company you are using is licensed and able to issue a bond. Once your bond has been issued, you can contact the surety company and ask for confirmation that your bond was authorized.
Obtaining a surety bond is an important part of building your contractor business, and you will need to have a current bond in place anytime you are applying for a new license, reinstating a suspended license, or renewing your license.
Even when your license is current, keeping your bond current is a benefit that can give you a leg up on the competition with it’s ability to protect your customers. Consider your contractor license bond as critical as rest of the tools you need to get the job done.