In California, surety bonds provide a financial guarantee that reassures the consumer and project owners that contractors will honor the terms of the agreement.  

The California surety bond is structured with three parties:

• The surety handles bond underwriting.
• The principal buys the bond.
• The obligee needs the bond to cover their project. 

Surety bonds differ from insurance in that they are preventive measures created to protect the consumer from regulatory violations and try to prevent them from happening from the start. 

The surety provides compensation to the obligee if the principal fails to meet the bond’s contractual terms, assuring the obligee is protected up to the bond value. 

The principal will then need to reimburse the total amount to the surety. The bond premium depends on the claim’s perceived risk, which is often low, considering the surety serves as a preventive measure. 

Obtaining A Surety Bond 

A contractor license bond is a primary type of surety bond required by the CSLB—Contractors State License Board. This bond protects the general public from regulation violations or defective construction practices that result in damages. 

Recent legislation has led to bond updates in California as of January 2023. The contractor’s license bond amount is $25000, illustrating how critical it is to remain current with regulations to stay compliant. 

A California surety bond is relatively straightforward to acquire with a contractor first completing an online application.  The surety agency will then request details to identify the bond most suited to your needs. As the applicant, you will review free quotes and various bond choices and sometimes receive the bond that day. 

The final step in securing the surety bond is paying the premium. Becoming familiar with California bond costs is essential for informed decision-making.  

Once the process is complete, the coverage begins. A platform with access to numerous surety agencies and various bond options will give you competitive pricing.  

Applying For a Surety Bond 

The online application must be thoroughly and correctly completed with the following details to be met: 

• The attorney general must approve the bond forms 
• A surety agency licensed by California’s Department of Insurance must write the bond 
• The California State Licensing Board records must match precisely the company name and the license number on the application 

When these steps are fulfilled adequately, the application will move through seamlessly. Working with brokers with knowledge and expertise will ensure you maneuver the process smoothly, particularly if you have challenges like poor credit. 

Surety Bond Costs  

The cost of surety bonds is affected by the bond type, the surety agencies, risk, and the applicant’s creditworthiness, which are critical determinants of the premium. Applicants with lower credit scores can face a higher cost due to the associated risk for the surety. Each surety agency uses its own formula for premium figures.  

For contractors to operate legally and maintain their license in California, there are specific bonding requirements to comply with, including carrying a $25000 licensing bond.  

Depending on the license status, you might also need additional bonds like a “Disciplinary Bond,” an “LLC Employee/Worker Bond,” or a “Bond of Qualifying Individual.” Read here for types of surety bonds in California to find the proper bond for your business. Fulfilling these requirements allows contractors to: 

• Protect each person’s interest from the construction aspect 
• Undertake new projects 
• Comply with contractual and licensing obligations 
• Conduct business legally in California 

Strategies For Application Approval When Challenged by Poor Credit 

Applicants with credit issues could face challenges when trying to acquire a surety bond. A lower score can alert the surety to a higher-risk contractor, requiring additional collateral to cover the bond and a greater amount in premium costs.  

In that vein, however, contractors do have strategies they can use to improve the chance of approval. Here are some strategies you might consider when applying for a surety bond with a low credit score: 

• Actively working to raise the score 
• Using a cosigner with stellar credit 
• Securing excellent references 
• Offering more collateral 

Some surety providers offer programs for contractors with lower credit scores to help facilitate approval, but this will likely mean higher premiums. 

Documentation And Renewal Process 

To maintain an active license in California, contractors must renew their applications and pay fees before the expiration date. The fee is roughly $500. The CSLB—Contractors State License Board—sends active contractors renewal applications approximately 60 days before the expiration date.  

The form should be thoroughly and accurately completed and sent with the fee online or by mail to maintain an active license. It’s recommended contractors do the following also: 

• Maintain complete bond documentation 
• Assess to ensure the bond is up to date 
• Align the old bond expiration with the new one’s effective date. 

Claims And Disputes for California Surety  

If a claim or dispute is lodged against a California surety bond, the surety will investigate to ascertain its responsibility in acting on behalf of the contractor. The disputes must focus on specific contractual obligations. The surety has no provisions for suits based on bad faith.  

The bonding company’s reputation, quality, and financial strength are integral to resolving disputes. When the surety pays a claim, the contractor is responsible for reimbursing the surety the total amount, along with investigation costs and additional fees.

Final Thought 

Becoming familiar with the California surety bond processes and requirements for 2024 is critical for contractors to streamline compliance and operations. Gaining insight into the fundamentals will ensure your business functions in an ethical, secure manner and can grow and expand for optimum success.