Commercial Surety 101: Why Contractors Need to Be Licensed and Bonded

surety bonds - Why do contractors need to be bonded - modern home with terrace

Why do contractors need to be bonded? 

Contractors can actually work without being licensed or bonded in some states; however, it is always advisable to become licensed and bonded. This is because there are many benefits of being bonded for contractors. The following are just some of the reasons why you should be bonded:

  • You have a better chance of getting contracts since bonding can give clients peace of mind that they will not lose their investment if anything happens during the project. Contractors who are bonded tend to be more successful than those who are not bonded.
  • Bonds protect you against losses if something goes wrong during or after project completion. The contracting business is relatively risky so it is better for contractors to have some protection if anything goes wrong with a client’s project. Also, many clients require contractor bonds before they will hire the contractor.
  • Bonding is a sure way to protect your company from losses.
  • You can get a discount on some services such as homeowner’s insurance.

What are the benefits of getting bonded as a contractor?

Contractors who are bonded can also enjoy added benefits from their bonding companies including:

  • Direct referral business by the surety
  • Access to capital and financing assistance through corporate bonds or equipment leasing/financing
  • Business advisory services

There are also certain types of contractors who are required to be bonded by the state in which they work. These include:

  • Contractors working with federal, state, or local governments on public works projects which are valued at over $100,000. 
  • Those providing professional engineering and architectural services.
  • Contractors who will be performing a contract of $1,000 or more with the government. 
  • Those engaged in work for public utilities and railroads.

Is a contractor bond a must-have?

There are professions that require contractor bonds even if you don’t meet the state’s dollar threshold. These include:

  • Security service contractors – those providing guard services as well as alarm and armored car companies. Homeowners should always check to see if their security company is bonded since most burglaries occur within the first 30 minutes after the security company leaves. 

If your security firm is unlicensed and uninsured, it can be nearly impossible for clients to recoup losses from property damage and theft during this critical period. So not only do homeowners need to ensure that their own service provider is licensed and insured, they need to ensure that the security company they are using has its own bonding.

  • Private investigators – this is a profession in high demand so being bonded with one of the top surety companies can help you get more contracts. A private investigator may be asked to provide services at home or on the go for his clients. If he comes back with successful results, then he will most likely get paid; however, if there are problems during the project, then his bond can protect him against losses.
  • Licensing board compliance bonds are provided by contractors working for licensing agencies like medical boards and real estate commissions where licensing violations lead to license revocation or fines imposed on applicants who falsify information on their applications.

What happens if a contractor is not bonded?

If the contractor is caught working without having a bond in place, they will be forced to stop work immediately. The bonding company may bring legal action against them for violations of the state’s code or even criminal charges. 

They will also need to be able to pay all claims that are made against them by clients who have suffered losses because of faulty workmanship, material defects, and other problems caused by the contractor during their projects.

Bonding your contracting business can protect you from financial loss in case anything goes wrong with any project you undertake. It will give you peace of mind knowing that there are some safeguards in place if something does happen. Just make sure that when you get bonded, choose one of the top-rated insurance companies which have your best interests in mind.

Is it legal to accept projects without getting bonded first?

Contractors must get bonded before they can accept any project. Some of them may try to find ways around it but it is not worth the risk of getting caught and having to pay all claims that are made against you. It really does pay to be bonded, especially if you work on higher-value projects where there are many potential risks involved.

Understanding what it means to be bonded is essential if you want to protect your business from possible financial losses in the case of defective products or faulty services provided by your company. If you have any more questions about bonding, check with some of the top-rated surety companies today!

Even if you are able to get away with such an act, the fact is that you should never take chances when working with other people’s money and expect them not to come after you for losses suffered due to your negligence or incompetence.

Interested to know more about surety bonds? Check out Alpha Surety Bonds now!

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