What Factors Go Into the Cost of Bonds

License bonds for contractors are binding contracts among three parties: the principal

(contractor), obligee (entity requiring the bond), and surety provider that guarantees the contractor’s obligations. Most states require contractors to get a license bond to work. The license bond protects subcontractors, residential or commercial clients, and suppliers should a contractor cause damage to these parties. It ensures that an individual can seek financial restitution if the contractor refuses or cannot reimburse a claimant for damages.

How Much Does a License Bond Cost?

The cost of a license bond can vary based on several factors:

Bond Amount: This is the maximum limit the bond provides should a contractor fail to meet his obligations. Generally, each state determines the bond amount, with the cost of the bond being a percentage of this amount. Higher bond limits typically result in higher costs.

Contractor's Credit Score: The contractor's credit history substantially impacts the bond cost. A higher credit score generally indicates a lower risk, as it suggests that the contractor has a history of managing financial responsibilities responsibly. In addition, contractors with strong credit scores are more likely to be approved for a license bond. They also may receive more favorable terms, including lower interest rates and more flexible payment options.

Business Financials: The financial stability and performance of the contractor's business can impact the bond cost. Strong financials may indicate a lower risk, which can lower the bond cost.

Experience and Track Record: Contractors with a proven history of completing projects successfully are often viewed as lower risk, potentially resulting in lower bond costs.

Type of Bond and State Requirements: The specific type of license bond required and the regulations set by the state or local licensing authority can affect the cost. Types of bonds can include General Contractor, Specialty Contractor, Residential Contractor, Commercial Contractor, Dual License Contractor, and Taxpayer Bonds.

Coverage Period: The length of time for which the bond is needed (coverage period) can impact the cost. Bonds may be issued for one year or multiple years, and longer terms may have higher upfront costs but could offer some savings compared to renewing the bond annually.

Type of Work and Risk Assessment: The nature of the contractor's work and the associated risks can influence the bond cost.

Bonding Company and Brokerage Fees: The surety company's policies and fees and any fees charged by the broker facilitating the bond, can affect the overall cost.

Industry Reputation: A contractor's history of legal and ethical conduct may be considered when determining the bond cost.

Bonds often range from $2,500 to over $100,000, depending on the contractor's finances and the project size. The bond cost is divided into monthly payments.

Go Bonds can help you get the bond you need in Arizona, Nevada, Oregon, and Washington. We work with top-rated carriers to provide affordable bonds so you can focus on growing your business. Go Bonds uses a soft credit check for all license bond applications, which won’t affect your credit score or show up on any credit reports.