How the Bonding Process Works: A Step-By-Step Overview from Applying to Approval

While all licensed contractors in the state of Arizona have a bond, few know how their licensing bond actually works. You enter a few details online or over the phone, and, next thing you know, you have a bond  — bonds are elusive and often misunderstood. To break down the bonding process and answer some of the most frequently asked questions, we spoke to resident bond expert, James Drake.

What is needed to apply for a bond?

An application fee number, prelicense number, and a social security number. With the application fee and prelicense numbers, underwriters are able to tap into your license application with the Arizona Registrar of Contractors (AZROC). They use this to access more detailed information about your business, such as business size and history. Your social security number is then used to check personal credit. For businesses with shared ownership, Drake clarifies that you are able to choose which individual from the group whose social security number you would like to use.

How do I know what size bond I need?

From the information provided, bond companies are able to quickly find what size and type of bond the state requires of you. This is determined by the classification of your license and projected annual earnings. Moreover, bond companies are not allowed to issue bonds that do not meet state licensing requirements.

Are bonds insurance?

This is a common, and dangerous, misconception, cautions Drake. Bonds are a means of consumer protection. You pay the bond company to pay the state in the event of a claim being filed on the bond — the price of the bond reflects the risk of a claim being filed against you. If a claim is filed, the indemnity agreement you signed to obtain the bond means that you are legally required to pay the full amount of the bond claim back to the bond issuer — or else you risk losing your license and/or your ability to receive future coverage.

Why might a bond be rejected?

Poor credit shows a history of payment issues. Because of the heightened risk of defaulting in the event a bond claim is filed, contractors with bad credit may see their bond application rejected entirely or experience higher than normal rates.

How long does it take to get a bond offer from an insurance company?

In “under ninety seconds,” Go Bonds is able to get contractors in standard to preferred credit tiers a bond offer, says Drake. At Go Bonds, the bond is then e-filed with the state by the next day. The state then approves the bond in twenty-four to forty-eight hours, and, from there, your license is issued in two to four weeks.

Can you shop around for bonds?

While, in California, companies are able to offer discounted bonds, discounts are illegal in Arizona. This means that your bond will likely cost the same wherever you go. If you have poor credit, however, and are rejected for a bond, you may be able to find one elsewhere as some companies work with a narrow range of markets. Go Bonds is entering Arizona with 5 partners, and Drake touted the company’s ability to “help anyone with any situation.”

Timeliness and customer service, says Drake, are the ultimate differentiator among bond companies. And having an expert who is able to explain the in’s and out’s of your bond can mean the difference between losing money by mistakenly treating a bond like insurance and taking preventative measures to avoid a claim entirely. To see what makes Go Bonds different — and how we might be able to help you — give our experts a call.