Most projects require a contractor to have a
license to ensure that they are working with professionals. For the part of the
contractors, some states can require them to get a bond before they are going
to release a license.
Construction bonds are a type of surety that is
used by many investors in a project. They are a safety net if ever the workers
won’t be able to finish the job, or the work was poorly done. Most companies,
public works, and government projects require their contractors to have a bond
before the project starts.
Why Get It?
A bond is different from insurance. The
contractor pays for it to protect other people. Unlike insurance, which
protects the person who pays the monthly premium, a bond is there to make sure
that there will be money in case someone does not finish the project, which
results in a financial loss.
This kind of assurance will make the company
seem more trustworthy because they are willing to reimburse their clients in
cases where the expectations were not met. Of course, before the bond can be
released, there will be a thorough investigation that will take place. If the
claim is valid, then the surety company will pay the clients, and in turn, the
contractor will pay the company in return.
Requirements for Getting the Bond
In California, there are specific requirements
that must be met, such as the following:
surety company should be recognized and licensed with the California Department
minimum amount required is $15,000.
license number and the business name should correspond to the Contractors State
License Board’s (CSLB) records.
agreement and the terms should be written in a form that is accepted by
California’s Attorney General’s Office.
paper containing the deal, company name, and other details should be submitted
to the CSLB’s Headquarters within 90 days, starting on the effectivity date.
Got a Bad Credit?
Many contractors are worrying that they might
not be able to get a bond because of their bad credit rating. Most surety
carriers will run a credit check to the individual who is applying as part of
the process because the reimbursement will ultimately come from the contractor.
The credit checks done is a soft check that
won’t impact a credit score in any way. In California, the Insurance Services
work alongside surety companies to ensure that the individual is not high-risk.
As a result, contractors who have poor credit can choose and purchase the
lowest available packages in the market without too much risk on the part of
the surety company.
It is not uncommon that there are contractors
who skip town and leave their work unfinished, resulting in unsatisfied clients
and financial loss. On the other hand, there are hard-working contractors out
there who got a misfortune to have bad credit because of the market or because
their business is just starting.
If you have bad credit, you can start with
small projects that you are sure that you can finish and work your way up from
there. Some companies can accept any candidates regardless of their credit
ratings. You can look for some of them on sites where there is plenty of contractors license bond to choose from.
Research and Browse through Lots of Options
Many contractors will be subjected to a review
before they can get approved. The approval is often based on the applicant’s
credit score, time of application, and qualifications. Some applicants are
authorized to pay as little as 1% of the total amount. For example, if they
have a $15,000 contractor’s bond, then they might just be required to pay $150
for the whole term. If the applicant has a less than stellar credit, they can
still get approval, but the rate will be from 2% to 6% of the total amount.
There are lots of surety companies that offer
financing services so that applicants can make smaller, manageable payments.
You can start from there and make your very first project a success to build
your credit and reputation. You can talk to a lot of surety companies in the
process and choose ones that will approve you immediately so that you can start
your client’s project or bid into one in the soonest possible time.
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