Are you planning to obtain a contractor license in California? If so, you have to purchase a license bond as well.
This agreement serves as a guarantee that the public will be reimbursed for any financial damages should these professionals fail to adhere to the licensing law.
Contractors in the state of California are regulated by the California Contractors Licensing Board (CSLB).
We hope the information below helps you learn how to obtain such an agreement.
What Is a Contractor License Bond?
This term refers to an agreement that binds three parties, the principal, the obligee, and the surety. The majority of states, such as California, require a bond from contractors in order to issue a license to them.
These professionals are obliged to purchase it as an indispensable part of the license application process, as it guarantees the public will be compensated for any financial harm if the contractor breaks the licensing regulations.
The principal refers to the contractor required to purchase a bond. The obligee stands for the local government, country, or state requiring this guarantee. In contrast, the surety is in charge of issuing it.
The surety provides the obligee with a guarantee that suppliers, employees, customers, or vendors will receive financial damages upon the violation of the license law in California, up to $15,000.
The surety receives the claims directly from the public and evaluates their validity. If the claim is valid, the contractor should reimburse the surety so as to avoid license suspension.
Such violations include not paying the vendors or employees, leaving a job uncompleted, or unsatisfactory workmanship.
How to Obtain One?
The first step of contractors getting a license bond is applying for a free quote to see how much it will cost. Then, the applicant is supposed to fill out the application form.
The surety has to evaluate the finances of candidates in order to be sure they can fulfill the obligations of the agreement. As far as the California contractor license bond is concerned, it is a formal agreement between the state of California and a surety company.
If the bonding company finds a candidate qualified, the next steps for the applicant are to sign the contract and pay the premium.
The largest part of applicants is curious about the use of a credit check to verify the eligibility of candidates. Credit checks are run by surety companies to determine their credibility and bond pricing.
Candidates with solid credit scores and extensive experience are usually qualified to get the best rates. Conversely, those with poor credit scores are either declined or required to pay costly rates.
Applicants with bad credit also have chances of getting a bond, as some surety companies are more lenient than others.
Credit scores are affected by tax liens, late or missed payments, accumulated debt, etc. Getting approval with a bad credit score will result in high rates. It’s the price one must pay for not having a stellar score.
How Often Is It Paid?
California contractor license bonds are paid once annually, ranging from as little as $100 to over $450. For example, applicants with a score over 720 might pay a low amount, such as $100.
In contrast, those with a score below 600 might be asked to pay as many as $450 annually. The surety company sends repayment reminders to principals up to ninety days before its renewal.
In addition, these agencies must notify principals before automatic renewal, as they need to be provided with the option to either renew the contract or shop for a lower rate.
License bonds are usually approved on the day of application, given all financial information is provided and checked.
Is It Different Than Insurance?
Plenty of contractors confuse license bonds with insurance in spite of the difference between the two terms.
Bond pricing is based on the credit history of the applicant, considered responsible for its actions, and requested to provide repayment to the surety agency when claims are paid out. Conversely, in the same scenario, insurers don’t expect full payment from policyholders.
CSLB criteria have to be respected in order for applicants to earn a license!