Contractor's Bond: Things to know
Looking into purchasing a contractor bond for your business? Let's dive into some details about why the CSLB requires you to have a bond. First, what is a contractor bond? A contractor's bond is a type of surety bond that provides financial protection to clients or customers who hire a contractor to perform services. The bond acts as a guarantee that the contractor will fulfill their obligations under the terms of the contract, and if they fail to do so, the client or customer can file a claim against the bond. The bond amount varies depending on the type of work being performed and the state in which the work is being done. The bond amount varies depending on the type of work being performed and the state in which the work is being done. For example, a general contractor might be required to obtain a bond worth $25,000. CSLB recently increased this amount on 01/01/2023. They want to ensure the contractor has sufficient coverage for the work being performed.
How Much is a Contractor's Bond?
The cost of a contractor's bond is typically a percentage of the bond amount, usually between 1% and 15%. The percentage depends on a variety of factors, such as the contractor's credit score, the type of work being performed, and the bond amount. With a good credit score, you're looking at about $150/year. Please contact us for a free 2-minute quote.
What Happens If They file a Claim on My Bond?
If the contractor fails to meet their obligations, the client or customer can make a claim against the bond to recover any financial losses or damages. The bonding company that issued the bond will investigate the claim and if it is found to be valid, they will pay out the claim up to the amount of the bond. The contractor who purchased the bond will then have to pay back the surety. Failure to pay back the surety can result in collection demands, & difficulty in purchasing another bond in the future.
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