What Contractor Bonds Actually Do
A contractor license bond protects consumers, not you. If you abandon a job or violate state regulations, the homeowner can file a claim against your bond. The surety company pays the claim and then comes after you for reimbursement.
This is fundamentally different from insurance, where the carrier absorbs the loss. With bonds, you're always on the hook.
How Bonding Works
Three parties are involved. You, the contractor, are the principal. The California Contractors State License Board is the obligee requiring the bond. And the surety company guarantees your performance.
If a valid claim comes in, the surety pays up to the bond amount. Then they send you a bill. You pay them back, or they come after your assets and future income to collect.
California's Bond Requirements
California requires a $25,000 contractor license bond for all licensed contractors. This is a flat amount regardless of your project size or license classification.
Residential contractors have some additional requirements under California law, but the $25,000 bond is the baseline for everyone.
What Triggers Bond Claims
The most common reasons for bond claims are walking away from a project before completion, failing to pay subcontractors or suppliers, violating the contractor licensing laws, and significant building code violations.
An Orange County contractor I know had a claim filed when he legitimately had to pause a job due to an owner payment dispute. The claim went nowhere because it wasn't valid, but it still took time and documentation to resolve. Bond claims are adversarial by nature.
Getting Approved
Surety companies evaluate your personal credit score, financial strength, and industry experience.
Good credit makes everything easier. A score above 650 usually gets you standard rates between 1% and 3% of the bond amount annually. Scores between 600 and 650 push you into higher-rate territory at 3% to 5%. Below 600, you're looking at specialized programs, higher costs, or posting cash collateral.
Beyond credit, underwriters want to see available liquid assets, reasonable debt levels, and a track record in your trade.
What Bonds Cost
California requires a $25,000 license bond. Premium typically runs 1 to 5 percent of the bond amount annually, so you'd pay roughly $250 to $1,250 per year depending on your credit.
With strong credit, you might pay just 1% of the bond face value. Challenged credit can push premiums to 5-10% or require a cash deposit equal to the bond amount.
Other Bonds You'll Encounter
Beyond your license bond, certain projects require additional bonding.
Bid bonds guarantee you'll sign the contract if you win. Typically 5-10% of the bid amount.
Performance bonds guarantee you'll complete the work according to contract terms. Usually 100% of the contract value.
Payment bonds guarantee you'll pay your subs and suppliers. Required on virtually all public works projects.
These project bonds require significantly more underwriting than license bonds. The surety is taking on real financial risk, so they dig deep into your finances, experience, and project management capabilities.
The Application Process
For a license bond, gather your personal and business financial information, your California contractor license application, and any prior bonding history. We can get most license bonds approved in 24-48 hours. Strong applicants often get same-day approval.
Project bonds take longer because they require more documentation and analysis.
Keeping Your Bond Active
Your bond must stay current for your license to remain valid. Renew before expiration. If your credit improves, you might get better rates at renewal. Claims against your bond will increase future costs and potentially make you difficult to bond at all.
If you need to cancel, the surety sends 30-day notice to the Contractors Board. Don't let your bond lapse without having replacement coverage in place, or your license goes with it.
Common Questions
What's the real difference between bonds and insurance?
Insurance pays claims for you. Bonds just guarantee your performance to others, and you repay any claims. The surety is essentially co-signing for your behavior, not absorbing your losses.
Can I get bonded with damaged credit?
Yes, but the cost goes up or you'll need to post collateral. We have surety partners who work with credit challenges. Being honest about your situation from the start leads to better outcomes than trying to hide problems.
How fast can I get approved?
Standard license bonds typically take one to two business days. If you have complete financials ready and clean credit, we often get same-day approval.