Did Your Bond Renewal Price Go Up This Year?
Yes, that’s what we’re hearing from so many of our contractor clients. Many contractors are taking jobs just to stay “alive and working” and are not necessarily making money on the job. For those of you in the contracting business for some time, you know that maintaining a good credit history is crucial to maintaining a great bond price. Because the bond is a requirement of the Contractors State License Board in order to operate as a contractor, you aren’t left with a choice on whether to be bonded like some other business types. Unless you have an extra $12,500 you can tie up for years and years in an account specifically for the purpose of surety bonding, you will need to purchase a bond.
A bond it is not insurance. A license bond is a contract between the surety company, the principal (contractor), and the obligee (potential clients for whom the contractor is working). It provides security and a potential financial benefit to the obligee on behalf of the principal, ensuring that the award of money damages will be fulfilled (up to the $12,500 bond amount) in the event of a bond claim. Because they act as a “third party” who has “checked out your background”, they give some comfort and assurance to the general public that you can be trusted. Of course just because a contractor is bonded, doesn’t mean that a criminal act will be prevented from occurring in the future.
Because a surety company could lose the $12,500 in the event of a claim on the bond, they use strict and fairly simple underwriting criteria in order to determine whether they will offer a bond quote. This criteria also helps them determine the cost of the bond which can vary greatly from around $100 (give or take), up to $1300.
What factors do surety companies use for contractor bonds?
- Claims on the contractor’s license, (such as fraud and criminal history relating to your operations)
- Personal credit history (credit check done using your social security number and date of birth)
- Business credit history (credit check using the FEIN)
- In some cases the surety may ask for personal and company financial statements.
A Contractor’s License Bond can be purchased via an insurance agency like ours. We go directly to Surety companies on your behalf. As an independent broker, we have access to many Surety companies just as we have access to many Insurance Companies and as your broker, we are working on YOUR behalf, not on the behalf of any single surety company.
Because businesses in general, (especially California Contractors), have experienced a drop in credit score, many of you are forced to shop for your bonds when up for renewal. Our agency is appointed directly with many surety companies and I would love the opportunity to help you with your bond. Just fill in the quick contact info above, putting “Contractor Bond Required” and your contractor license number and I’ll get back to you ASAP to ask you for the rest of your information.