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California Contractor's License Bond

California Contractors License Bond

Anyone who wants to qualify for a contractor license in California also needs a contractor's license bond. The California Contractors State License Board (CSLB) requires all contractors seeking licensure to obtain this specific type of surety bond.

Without a California contractor's license bond, obtaining a license is impossible. And should the bond ever lapse or expire, the license does, too, making it illegal to continue conducting business. Given the close link between surety bonds, the contractor's license, and your business strength, it's essential to understand exactly how the bonding process works. That's where Viking Bond Service comes in. Our team is here to provide you with expert information in an accessible way. We're also here to help you get a California contractor license bond quickly and affordably. So, keep reading for all you need to know.

What is a Contractor Bond in California?

The state requires a California contractor's bond to protect the contractor's customers and the public. It is a surety bond designed to ensure that all licensed contractors abide by state and local licensing requirements. A California contractor license bond protects the public by providing monetary compensation if the contractor fails to comply with the appropriate regulations. Where a performance bond ensures the contractor completes the contract to satisfactory standards, a California contractor's bond ensures that they do so while abiding by all state and local licensing requirements.

A California contractor's license bond is a financial promise to adhere to state laws and regulations when working to complete a job for customers. It is an agreement between the contractor, the public, a surety company, and the state. It creates a mechanism for filing a claim against the contractor in case of unethical behaviors or damaging actions arising from disregarding California licensing regulations. The surety bond acts as a guarantee that the contractor will live up to the professional standards required to fulfill the contract. If a contractor fails to complete the work in accordance with applicable regulations, a claim can be made on the bond. Valid bond claims are paid by the surety backing the bond. The surety will then seek to recover from the contractor the amounts they paid on the claim.

Although a California contractor's bond is designed to protect the public from unscrupulous contractors, it also benefits reputable contractors like you. It acts like a certification, a guarantee that you, as a contractor, will always work to high professional and ethical standards. The bond shows that you, your company, and the business that hired you are experienced and reliable. If anyone is harmed by an unethical action or decision during a project, they know they can file for financial recompense against the surety bond.

How Does a Contractor License Bond in California Work?

There are three parties to any California contractor bond:

  • The Principal is the contractor whose work is ensured by the bond.
  • The Obligee is the party that requires the bond (i.e., the State of California).
  • The Surety is the insurance company that underwrites the bond.

A California contractor's bond provides a financial guarantee to the state that the contractor's work will be done according to all state regulations and requirements. If a contractor has a claim filed against them by a customer or the state of California, the surety company will fully investigate the claim. The surety then will pay any valid claim in full, up to the value of the contractor's bond. The contractor has to repay the surety company for any payouts made from the California contractor bond.

What Does a California Contractors License Bond Cover?

A California contractor's bond covers any damage caused by the principal if they fail to abide by state regulations and restrictions. These regulations concern how work is to be done. It also mandates that subcontractors and suppliers must be paid promptly and in full. So, a California contractor license bond also protects others from unethical actions. Non-payment of subcontractors, damage or theft of materials by a contractor, and property damage caused by a contractor can all result in claims on the contractor license bond.

How to Get a Contractor License Bond in California

California contractor license bonds are purchased from a surety bond company licensed through the California Department of Insurance. The bond must be active and renewed for as long as the contractor remains licensed. Getting the surety bond is usually as simple as a general surety bond application, a credit check, and paying the premium. The whole process can take as little as a day.

Just as important as obtaining a California contractor bond is keeping that bond active and in good standing. The minute your bond coverage lapses, your contractor's license does too. At that point, any professional services you perform become illegal and subject to strict penalties. You will need to renew the bond every 12 months to keep it active.

The California contractor's bond renewal process works almost identically to the initial application: You will complete an updated bond application and submit to another credit check. Underwriters at the surety will determine how your credit score has changed over the previous year so they can adjust your premium price accordingly.

Who Needs a California Contractors License Bond?

The CSLB requires all contractors to have an active $15,000 California contractor's surety bond, $25,000 as of January 1st 2023. The bond is a requirement for new licensure, license renewal, and reactivation of a license. Under certain circumstances, additional bonds may be necessary.

A Bond of Qualifying Individual may also be required for some contractors. These bonds, when required, are in addition to the California contractor license bond. The required bond amount on these bonds is $12,500. A qualifying individual may be an owner of at least 10% of the contractor company or a full-time employee with managerial responsibilities. This additional bond is required only when the primary owner of the contractor company is not, themself, a qualifying individual.

The CSLB also has one additional bond requirement for some contractors – the Disciplinary bond. This bond is required to reinstate or reissue a license that was revoked due to a violation of the CA Contractors License law. The CSLB Registrar determines the Disciplinary bond amount. The amount can range from $25,000 to $150,000. The Registrar requires these bonds to be current for at least two years. When necessary, the disciplinary bond is in addition to the California contractor bond.

You're certainly not alone if you're unclear about which surety bonds you do and don't need and in what amounts. At Viking Bond Service, we hear from people all the time who need help making sense of their California contractor license bond requirements. We're happy to provide that help. Rely on our team of bonding experts to determine what bonds you need and to make acquiring those bonds as straightforward as possible.

California Contractors License Bond Requirements

A current California contractor license bond is required of all contractors working in CA. Additional requirements include:

  • The California contractor's bond must be written by a surety company licensed by the California Department of Insurance.
  • The bond must be for $15,000, $25,000 as of January 1st 2023.
  • The contractor's business name and license number, as listed on the bond, must be exactly as shown on the CSLB's records.
  • The surety company's attorney-in-fact must sign the bond.
  • It must be written on a form approved by the state Attorney General's office.
  • The CSLB headquarters must receive the contractor's bond within 90 days of the bond's effective date.

How Much is a Contractor's Bond In California?

Because California contractor license bonds are underwritten individually, their cost varies from applicant to applicant. The final cost depends primarily on the applicant's credit score and, to some extent, their record as a contractor. The typical price range for these bonds is from 1.5% to 3% of the bond amount. Contractors with stronger credit scores can expect their bond cost to be lower than applicants with challenged credit.

If your credit makes it difficult to obtain the California contractor license bond you need, don't worry. Viking Bond Service offers a bad credit surety bond program specifically for people with a credit score on the wrong side of 700 or a bankruptcy serving as a blemish on their record. We can't guarantee that everyone will get approved for a surety bond. However, we do guarantee that we will do everything possible to get you approved regardless of your credit score. And we fight hard to keep premiums low. For the best chance of getting bonded, work with us.

How to Manage California Contractor License Bond Costs

Like any other business expense, California contractors must carefully manage and monitor their surety bond costs. Some proactive steps can help keep this cost low and even lower the price every year. Here are some tips to help manage California contractor license bond costs:

  • Pick the Right Surety Agency – Some agencies charge drastically more than others for the same surety bond. Always choose one that offers fair and competitive pricing – like Viking Bond Service.
  • Avoid Claims – Claims cost significantly more than the bond itself. Having to pay a claim can put a serious hole in a contractor's budget and drive up the surety bond's rate. The best way to avoid these unexpected costs is to know what behavior can trigger bond claims, then avoid that behavior at all costs.
  • Pay All Claims – Contractors have the option to pay for claims themselves before the surety steps in to pay. Promptly settling claims helps a contractor avoid the interest and fees the surety charges. It can also keep a contractor in good standing with the surety, which is important because claims can often lead to rate increases or even loss of bond coverage. Working without a bond invalidates a contractor's license, creating the risk of additional costs, fees, and penalties.
  • Improve Your Credit – If a contractor's credit has improved since the last time they renewed the bond, the new premium price will be lowered. Steady improvement in credit score and financial standing directly leads to continued reductions in bond costs.

Request a California Contractor License Bond Quote, Today

Don't wait to seek out a California contractor license bond. It is essential to acquiring and maintaining your license. Check off this requirement so you're one step closer to starting your business. Viking Bond Service is your partner every step of the way. You can get a bond quote in as little as 24 hours by completing our online application. Or, contact us online or call us at 1-888-2-SURETY (1-888-278-7389). Our team is eager to answer your questions – free of charge and with no obligation. We are here to help you!

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