Before you can start a career as a contractor you will need tools, a vehicle, and a way to connect with new customers. But you may also need to get authorization from the state where you live.
To become a licensed and bonded contractor, contractors must jump through a surprising number of hoops to get their business fully compliant with all the rules. Understanding exactly what you need to do can be confusing, but it’s essential to get things right because your business depends on it. If you don’t check all the boxes that the state requires, it’s illegal for you to work as a contractor, and there are strict penalties when you get caught.
Aptly named, the two most common requirements in this process are to get a contractor bond and a contractor license. These are two different things, but they are also related, and they serve an overlapping purpose – it’s no wonder people are confused. Just don’t let that confusion keep you from pursuing your career as a licensed and bonded contractor. We will explain everything in the following article.
There are two ways to answer that question. In the eyes of the state, a licensed and bonded contractor is someone who meets all the core requirements to work legally. They have both a contractor bond and a contractor license, granting them the right to offer professional services to whoever will hire them.
In the eyes of potential clients, a licensed and bonded contractor is the only kind of contractor worth hiring. These individuals have been approved by the state or local city/county government because they have a license. They also agree to take responsibility for their mistakes because they have a bond (we will get into these distinctions more later).
Moreover, a licensed and bonded contractor appears more trustworthy, credible, and accountable compared to anyone who is not licensed and bonded. That’s why contractors who operate according to all the relevant rules have more successful and sustainable businesses.
In simple terms, a contractor’s license authorizes someone to work as a legal contractor within a specific state. Every state (and some counties/cities) creates its own rules and regulations governing the behavior of contractors.
License requirements are useful in several ways. First, they define standards that all contractors must meet before going into business, which keeps anyone who can’t meet those standards out of the industry. By being able to earn a license, all licensed contractors meet minimum standards for solvency, transparency, and accountability.
Secondly, license requirements give the state a mechanism to remove problematic contractors from the industry. If a contractor cheats customers, cuts corners, or puts public trust and human lives at risk, the state can revoke their license, then issue harsher penalties if they continue working.
Licensing requirements vary widely between states. In some cases, the type of license you need depends on the trade you practice, such as plumbing, electrical work, or general contracting. In other cases, the scale of the business determines licensing requirements. For instance, contractors that work on major building projects often need a different license than contractors who complete home improvement projects.
Since it’s imperative to meet all necessary licensing requirements, you need to know exactly what they are. Contacting the state agency that regulates your contractor type will always be the most accurate source of current information, but you can also talk to other contractors, recruiters, or professional organizations.
All states have individual requirements to obtain a license, some more difficult than others. Here are some common examples:
A contractor bond is a type of surety bond that holds a contractor financially liable for misconduct that causes damages to clients or the public at large. There are three parties involved:
A contractor bond creates a financial incentive for contractors to follow all state rules and regulations because they have to pay out of pocket when they don’t. This bond also helps anyone hurt by an unlawful contractor to resolve the situation by guaranteeing them a paid settlement equivalent to the damages.
Obtaining a bond is often the first step for how to become a licensed and bonded contractor. Here’s what to do:
The surety agency will use this information to quote a price for the bond premium – usually a small percentage of the bond size that can be higher or lower depending on credit. After paying the premium to activate the bond, the surety supplies documents proving you have met the contractor bond requirement.
By now you know about contractor bonds and contractor’s licenses. What’s the difference? Primarily the fact that obtaining a bond is a requirement to get a license. You must prove you have a contractor bond before you can get a contractor’s license. And if your bond coverage lapses for any reason, your license becomes invalid as well (state rules vary).
Bonds are a near-universal license requirement because they signal that a contractor is willing to be held accountable when they break the law. Even though a license and a bond are different things, they work in close conjunction. By that, we mean that a contractor wouldn’t need to get a bond if they didn’t also need a license. In addition, if they couldn’t get a bond, they couldn’t get a license either. This explains why you only hear about licensed and bonded contractors and not one or the other.
If you’re looking to become a licensed and bonded contractor, get a quote in less than 24 hours from Viking Bond Service. We are also happy to answer any questions you have – call us at 1-888-2-SURETY (1-888-278-7389) or contact us anytime.
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