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Contractor License Bond
Contractor license bonds guarantee that contractors will comply with all statutes and licenses required by the state. These bonds are not particularly risky allowing them to be placed with several different bonding companies. Due to this, rates can be excellent for those who qualify for the standard market.
Many government agencies require construction professionals to purchase contractor bonds before they can legally begin work on construction projects in certain jurisdictions. Because these bonds are often required before a contractor can secure a contractor license, they're also known as contractor license bonds.
Unfortunately, construction professionals usually don't know much about getting contractor license bonds. For example, new contractors might not realize they have to pass a financial review before a surety provider will issue them a contractor bond. Having a basic understanding of contractor bonds make the process easier and more pleasant for contractors.
The primary purpose of contractor license bonds is to protect consumers from unqualified contractors. As such, contractor bonds provide a legal financial guarantee that construction professionals will follow all applicable licensing regulations related to a project. Each contractor bond that's issued is unique in that its protection is dependent upon the bond's exact contractual terms. Government agencies that require contractor bonds work to regulate the industry, cut down on fraud and, of course, keep unqualified contractors out of the construction industry.
Rates for contractor license bonds vary for a number of reasons, as sureties calculate premiums based on a contractor's credit score and other financial credentials. Contractors who have low credit scores will pay more for their contractor license bonds because surety providers take a risk when backing financially unstable principals. Contractors with good credit should expect to pay a premium that's about 5% of the bond's penal sum whereas those with poor credit could pay up to 20% of the bond's penal sum.
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