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What is a Contractor Bond?

What is a Contractor Bond?

What are Contractor Bonds? 

In most states, it is required for contractors to get a bond.  They act as a guarantee to potential clients that they will live up to specific standards of operation, relative to the industry they are in.  What is a contractor’s bond in essence? It is a protection for residential or commercial customers against fraud or poor workmanship that is way below industry standards. Whereas performance bonds ensure that the contractor fulfills the terms of a contract, a contractor license bond ensures that the contractor will live up to state or local licensing requirements.

In legal terms, these bonds are a binding contract between three parties, a principal, an obligee, and a surety. The principal is the contractor who is seeking the bond for his business, the obligee is the organization imposing the bond requirement on the contractor, and the surety is an insurance company that guarantees their obligations. In the event of any claim, the surety company would pay the amount of the claim, but would then be reimbursed by the principal.

It is much more desirable for contractors to live up to the terms of any rules or regulations which apply, rather than to allow a situation to develop into a claim of unfulfilled bond terms. When that happens, an obligee would naturally seek financial restitution in lieu of unfulfilled terms, and the surety would have to pay the bond amount, as well as any legal costs involved. Ultimately, however, all those costs would then trickle down to the principal, who could suffer a major blow to his/her business.

 what is a contractor bond

At Surety by NFP, this is what we do every day.  We help contractors get bonded, so they can get their business rolling.  We are contractor bonding professionals, and we know what you need.  Contact us, or fill out the easy online application (takes a few minutes), and we will get you bonded as soon as possible.

As stated previously, it is a legal requirement in most states that the contractor gets bonded in order to operate a business within the jurisdiction of the business community where he/she will operate.

The Process that Contractors Must Go Through In Order To Become Bonded:

NFP Surety is a bonding agency that is happy to walk you through the process.  We are Bonding and Insurance Experts!

  1. Determine the type of bond needed – for working on public jobs such as municipal improvements, you would need a contract bond that covers any requirements in effect for the local area you’ll be working in. This could mean that you would need a local contractor license bond in addition to a state contractor license bond. On top of that, you might conceivably be required to obtain multiple sureties as a guarantee of performance, if more than one type of work will be performed, e.g. construction work, electrical work, plumbing. It will be important to find out exactly which bonding requirements are necessary before you begin any work because local or state authorities would have the power to halt all work if licensing or bonding requirements are not met.
  2. Application process – this is actually considerably easier than the first step, where you have to research the specific kinds of bonds needed for legal operation on a given job and location. Once you know which bonds are necessary, you can apply online and wait to be approved by the agency you’ve applied with.  We write all kinds of bonds including bid bonds, performance bonds, tax bonds, and more.
  3. Bond submission – assuming there are no hangups, the appropriate bonds will be delivered to you. When you receive them, you’ll have to sign each bond, make a copy for your personal records, and then return the original to the appropriate government agency. In some cases, additional paperwork must be sent in as well, but this will be clearly identified in the bonding process for you.
  4. Receive your license – when the government agency receives your signed copy of the bond, it will then forward to you a required contractor license to operate legally within that state or local area.

Get yours today

Call us today for a pain-free bonding process.  Or go to our website at  Let our team of trusted bonding agents walk you through the process, and shop your bond to one of our top-rated carriers. Call us at (800) 863-3210.  We appreciate your business!

NFP Surety bonds with top-rated carriers.  Some of our carriers for contractor bonds are Old Republic, Chubb Surety, The Hanover Insurance Group, Contractors Bonding and Insurance Company, and so many more!

What Does it Mean for a Contractor To Be Bonded

There is a kind of two-way action represented by contract bonds, the first of which is the legal requirement – you simply cannot operate a contracting business in your home state without that bond. The other aspect of the bond is its protective feature, which comes into play for all clients who avail themselves of your services.

If the contractor breaks any of the state’s rules for licensure, a claim can be made against the bond, which the contractor would be liable to pay. One example of this might be when electrical work is installed improperly, and the contractor refuses to come back and correct it. In order to get a bond in the first place, you would have to agree to pay the amount of a valid claim, using both company and personal assets if necessary. Needless to say, the last thing you want as a company, is to have a bond claim filed against you. Not only would it be financially costly, but the damage to your business reputation could be extremely damaging.

NFP Surety Administrator|User role
NFP Surety has been working in the insurance industry since 2008.

NFP Surety

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Phone: (800) 863-3210
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