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Texas Contractor License Bond

Texas Contactor License Bond

Wondering what a Texas contractor license bond is? Then you've come to the right surety bond service! Contractor license bonds are among the most important types of surety bonds in the State of Texas. In essence, their requirements help ensure that contractors in the state can be trusted to do good work. With professionals operating in many different trades such as plumbing, electrical, construction, and others, the contractor license bond greatly impacts the contracting industry

Contractor license bonds serve multiple purposes, but they are mainly required for consumer protection. The bond gives consumers financial recourse in situations where work performed by a contractor was not finished in an acceptable way. Although the bond itself is geared toward consumer protection, it also builds consumer confidence. A licensed, bonded contractor instills trust in consumers. Regardless of its intended purpose, the State of Texas makes this bond mandatory for anyone seeking a contractor's license—tens of thousands of people across the state. Learn the basics of bonding below.

How Does a Texas Contractor License Bond Work?

A contractor license bond provides a form of guarantee that the bonded contractor will perform the job in a manner acceptable to applicable trade and workmanship standards. The bond gives the contractor additional incentive to perform quality work and stand by his/her work. The bond also promotes conflict resolution in instances where issues may arise with work completed by the contractor.

Contractor license bonds are an agreement between the state representing the public, the surety who backs the surety bond, and the contractor who performs the work. The surety provides financial backing of the contractor's performance on jobs he/she is hired to complete via this agreement. In instances where a contractor does not complete the work in accordance with any applicable state regulations or standards, the affected consumer may claim on the bond up to the bond amount.

If a claim is found to be valid by the surety, a payment is made to settle the claim. Unlike an insurance policy, the contractor is responsible to the surety for any amount paid out on claims. For this among other reasons, it's best for contractors to avoid bond claims and settle any workmanship issues before they escalate.

Texas Contractors License Bond Requirements

In Texas, there are electrical contractor licenses and plumbing contractor licenses, as well as specialty contractor licenses—and all those with licenses must be bonded. The Texas Department of Licensing and Registration is in charge of licensing electricians, and the Texas State Board of Plumbing Examiners handles licensing plumbers. Specialty contractor licenses such as building, landscape, roofing, etc., are issued by individual cities and are subject to their fees, regulations, and requirements.

If you're unsure whether you need a bond and what kind you need, Viking Bond Service can help. Let our team of experts explore the requirements for you. That way, you get the best information available without having to hunt it down yourself. Plus, you can be sure you're meeting all your requirements in terms of Texas contractor bonds and, in the process, putting your business on solid standing in the eyes of the licensing bodies.

Why Do Contractors Need a Texas Contractor License Bond?

The contractor license bond builds confidence with the public and individual customers. It gives them the security of knowing that they've got financial recourse if work is not completed or completed incorrectly. Customers prefer to work with bonded contractors.

Texas contractor license bond requirements also help to keep unscrupulous contractors out of the industry. For various reasons, these contractors won't be able to secure a bond, so they won't be able to secure a license either. Keeping these bad contractors out of the industry elevates the quality of the Texas construction industry overall and helps to instill confidence in present and future customers. That is to say, Texas contractor bonds are as good for contractors as they are for the people who hire them.

The Parties in a Texas Contractor License Bond

All surety bond types involve three parties entered into a legally binding agreement.

  • Principal – The party that obtains the bond and pays for claims. In this case, the principal is the contractor. Claims could be filed against the bond if they do substandard work that violates state or local laws.
  • Obligee – The party that files claims for damages against the bond. The claim will be equal to the amount of losses caused by the principal (the contractor). Provided that claims hold up under investigation, the obligee is guaranteed a full settlement.
  • Surety – The party that issues the bond to the principal and pays claims to the obligee. After paying, the surety collects the amount of the claim (plus interest and fees) from the principal. Failure to repay results in legal action, loss of bond coverage, and, as a result, loss of a contractor's license.

How to Get a Contractor License Bond in Texas

Contractors can purchase Texas contractor license bonds from a surety bond company licensed by the Texas Department of Insurance. The contractor must keep the bond current by paying annual premiums for as long as the contractor license is active. The process of obtaining the bond is simple; in most cases it can be completed in as little as a day, and only involves a general commercial bond application, a credit check, and payment of premium.

Upon paying the premium, the bond company will provide documentation proving you have met the surety bond requirements. Prepare to submit this documentation with the rest of your license application, and keep a copy on hand in case you ever need to prove you have bond coverage (which isn't uncommon in the construction industry).

The Cost of Texas Contractor License Bonds

Surety companies consider several factors when determining the cost of a surety bond. Among the factors considered is credit – good credit can lead to lower quotes, although quotes for applicants with credit challenges are provided as well. As credit improves year over year, the surety bonds in Texas can be re-underwritten for lower premiums.

Contractor license bond amounts vary from city to city. They range anywhere from $2,000 on up to $100,000. The typical price quoted for these bonds is anywhere from 1% to 3% of the bond amount. Again, typically the better the applicant's credit, the lower the price quoted will be.

If you're worried that credit issues could make it hard to get a bond – or if you've been denied a surety bond before because of bad credit – rely on Viking Bond Service. We offer a bad credit surety bond program designed to get more Texas contractors approved for bonds (so they can get fully licensed) regardless of their credit. We don't guarantee approval. But we do everything possible to get applicants approved while keeping bond premiums affordable. That's our promise.

How to Renew a Texas Contractor License Bond

Just as important as getting a bond before getting a license, is keeping the bond active and in good standing. Most surety bonds expire after 12 months, at which point they must be renewed. Failure to renew a bond will immediately invalidate a Texas contractor license and make it illegal to conduct business. Therefore, it's critical to stay on top of the renewal process. That process looks a lot like the initial bond application. You will submit to a credit check and supply the surety with updated details about your finances and business standing. The surety will then quote you a new premium price based on any changes to your application. The price could go down if your credit score has gone up in the previous year, or the opposite could happen. Either way, Viking Bond Service provides you plenty of advanced notice about your renewal. When it comes due, we make the process of renewing your Texas contractor bond for another 12 months as straightforward as possible.

Surety Bond Strategies for Texas Contractors

Getting surety bonds is a big part of being a contractor. Many people need them upfront to get a contractor's license and need (multiple) bonds again for each project they work on. Some contractors need more bonds and bigger bonds than others, but they play a big role in every contractor's career regardless of their size, trade, or location. So it helps to know some strategies to make Texas contractor license bonds and all other surety bonds easy and affordable over the long term.

  1. First and foremost, work with an experienced and trustworthy surety bond agency that makes it easier to find competitive bond offers at fair rates. The right partner can save you a lot of time, money, and grief over the years.
  2. Next, stay on top of renewal deadlines and budget for the renewal premiums. Loss of bond coverage can throw an otherwise successful contracting business into turmoil that it may not be quick or easy to recover from. As discussed earlier, renewing Texas contractor license bonds is neither complicated nor expensive, but it takes some advanced preparation. Make that a part of your standard business planning.
  3. Finally, learn exactly what sorts of misconduct could result in surety bond claims, then avoid that conduct to the best of your ability. Settling claims costs significantly more than bond premiums and creates unexpected (yet major) expenses for contractors. When claims do happen, pay them immediately rather than relying on the surety to pay – the surety will add interest and fees to the debt. Most important of all, never default on a debt to the surety. Doing so could get very expensive and make it difficult to ever obtain a surety bond (or a contractor's license) again.

Texas Contractor License Bonds by Viking Bond Service

Getting your Texas contractor license bond is easiest with a reliable, experienced bonding company. You can trust Viking Bond Service with your Texas contractor license bond request. We've provided our Texas clients with contractor bonds across the Lone Star State for over a decade. Our process is stress-free, easy, and fast, so choose Viking Bond Service to get started with an online quote request now.

Have questions? Contact us or call 1-888-2-SURETY (1-888-278-7389).

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