How to Protect your Company with a Contractor License Bond 

If you are a contractor, it means you have a license to take up projects and offer your services for a fee. However, you’ll also need to have a contractor license bond to be eligible to get a license and provide services.

Your main job as a contractor or a contractor company is to accept projects belonging to your niche, complete the job as per the agreement with the clients, and get paid for it. But it’s not always this straightforward. Complications may arise that could lead to losses either for you or your clients.

Insurance protects you from such risks. But what about your clients? That’s where the contractor license bond comes into the picture. It is a type of surety bond you take to protect your clients and thus protect your company’s reputation.

In the United States, each state  has its rules and regulations to apply for a contractor license bond. You’ll get into a third-party relationship where the government agency/ client is called an obligee. You are the principal party and the one responsible for the bond. The third party is the Surety Company which agrees to pay the obligee on your behalf if they file a claim.

How it Works

If the oblige flies a claim that the contractor didn’t adhere to the rules or didn’t complete the project as per schedule, the surety company will verify the claim and pay the obligee. The contractor will then repay the surety company.

The contractor license bond is limited to the state. It means that you’ll need to take one bond for each state you work in. The minimum bond amount and other rules vary depending on the state laws.

How Does Contractor License Bond Protect Your Company?

●     Credibility

The first and biggest benefit of being a bonded company is that it gives you credibility. License, insurance, and contractor license bond are three primary deciding factors. People look for these three words when they search for a service provider.

●     More Projects

Being a bonded company makes you trustworthy in the market. It creates an impression that you are reliable and will complete the project as per the schedule. This will bring you more contracts and help expand your business into newer states. It provides you with opportunities to grow the company and earn more revenue.

●     Protect Company Reputation

A bonded contractor company can establish a worthy reputation for itself in whichever states it operates. The California contractors license bond is proof that the contractor is well-known and can be trusted in the state of California.

In case of unexpected events when you cannot complete the project, you will be saving your clients from facing losses for the same. Clients can be confident that they can put their money on your company and not risk it.

●     Tax Benefits

You are required to pay the premium for the contractor license bond once a year. This allows you to avail of some tax benefits where you can write off the expenses for insurance premiums. The money that goes into being bonded isn’t a ‘waste’ for your company. It’s an investment to build credibility and also to get some tax benefits in return.

●     Protection of Brand Identity

Are you worried that another company will use the same name as that of your business? The contractor license bond will prevent this from happening. No other company in the state can use the same brand name. While this rule has been set up to prevent confusion, it also ensures that clients can easily identify your company just by name.

●     Get Loans Easily

A company needs loans some time or another, isn’t it? Being bonded will make it easy to apply and qualify for a loan. One reason for this is that surety companies look at the credit score when offering the contractor license bond. Even otherwise, banks prefer to provide loans to contractors who are bonded and insured.

Choosing the Right Type of Contractor License Bond

A contractor license bond comes in different forms. You’ll have to choose the right one for your company based on where you work and the nature of services you provide. The following are some examples of contractor license bonds-

  • A general contractor license bond
  • Local contractor license bond (for the municipality or county)
  • State contractor license bond
  • Plumbing contractor license bond
  • An electrical contractor license bond


Finding a reliable surety company that offers the contractor license bond for a minimum or affordable premium can be hard to find without outside help. Luckily, many well-known third-party businesses act as mediators and assist you in finding a surety provider, insurance provider, and other ways to cut costs in establishing your company.