Licence bonds and surety bonds: what they are and why states ask for them
Many states require tradespeople to be bonded before they can be licensed. The word gets used loosely, so here is what it means.
What a bond is
A surety bond is a three-way promise. You (the principal) promise to follow the rules and complete work properly. A surety company guarantees that promise. The state or your customer (the obligee) can claim against the bond if you do not keep it.
A bond is not insurance for you
If a valid claim is paid from your bond, the surety will expect you to pay it back. The bond protects your customers and the public; insurance protects you.
Common types in the trades
- **Licence or permit bonds** - required by a state or city as a condition of your licence.
- **Performance bonds** - guarantee a specific job will be completed, often on larger or public projects.
- **Payment bonds** - guarantee that subcontractors and suppliers on a project will be paid.
What it costs
You do not pay the full bond amount. You pay a premium, usually a small percentage of the bond amount each year. The rate depends on the bond type, the amount, and often your credit history and experience.
How to get one
1. Find the required bond type and amount from your licensing board. 2. Get quotes from a surety provider or an insurance agent who handles bonds. 3. File the bond with the board as instructed, and keep a copy. 4. Renew it on time - an expired bond can suspend your licence.
Keep claims away
The best way to protect your bond is the same as protecting your reputation: clear written quotes, work done to code, permits pulled, and disputes resolved before they escalate.
Check your state and trade's requirements in the Service Boss licences checklist before you apply for your licence, so the bond is ready when the board asks for it.