California Contractor License Bond Requirements

December 12, 2019

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:

  • The surety company should be recognized and licensed with the California Department of Insurance.
  • The minimum amount required is $15,000.
  • The license number and the business name should correspond to the Contractors State License Board’s (CSLB) records.
  • The agreement and the terms should be written in a form that is accepted by California’s Attorney General’s Office.
  • The 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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