Complete Guide to Contractor Bonds
What are contractor bonds?
Contractor bonds include license bonds ($100-$300/year) required for legal operation and contract bonds (0.5-4% of contract value) required for specific construction projects. Most contractors need license bonds to operate and performance/payment bonds to bid public work over $150,000 under the Miller Act.
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Understanding Contractor Bond Types
"Contractor bonds" is an umbrella term covering two distinct categories with different purposes and requirements. Understanding this distinction is critical for compliance and business growth.
Required for legal operation as a licensed contractor
- Follows you to every job you work
- Protects consumers from fraud & violations
- Renewed annually (continuous requirement)
- Instant approval available (most states)
Required for specific construction projects
- Project-specific (expires when project completes)
- Protects project owners & subcontractors
- Required for federal work over $150K
- Always requires underwriting (1-5 days)
Most Contractors Need Both
License bonds are your ticket to legal operation. Performance and payment bonds are your ticket to winning major projects. Without a license bond, you can't work. Without contract bonds, you're limited to small private jobs. The successful contractors have both in place.
Contractor Bond Types Explained
Each bond type serves a distinct purpose in your contractor career. Here's what you need to know about requirements, costs, and approval times.
Key Features:
- Required for legal operation
- Follows you to every job
- Protects consumers
- Instant approval available (most states)
Key Features:
- Guarantees contract completion
- Required for large projects
- Project-specific (expires when done)
- Underwriting required
Key Features:
- Protects subcontractors/suppliers
- Required with performance bonds
- Project-specific coverage
- Underwriting required
Key Features:
- Pre-contract requirement
- Shows serious intent
- Typically 5-10% of bid
- Underwriting required
License Bonds vs. Contract Bonds: Quick Reference
| Comparison | License Bonds | Contract Bonds |
|---|---|---|
| Purpose | Compliance with licensing laws | Project completion guarantee |
| When Required | To operate legally in a state | For specific construction projects |
| Duration | Annual renewal (follows you) | Project duration (expires when done) |
| Who's Protected | Consumers & public | Project owner & subcontractors |
| Approval Time | Instant (most states) | 1-5 business days |
| Typical Cost | $100-$300/year | 0.5-4% of contract value |
Contractor License Bonds by Trade Specialization
Beyond general contractor licenses, many states require specialized bonds for specific trades. Browse our most popular trade-specific contractor bonds.
Required for general construction contractors in most states. Covers all types of construction work.
Learn More →Required for licensed electricians and electrical contractors performing wiring and electrical installations.
Learn More →Required for licensed plumbers and plumbing contractors in most states for residential and commercial work.
Learn More →Required for heating, ventilation, and air conditioning contractors installing and servicing HVAC systems.
Learn More →Required for roofing contractors in many states. Protects consumers from improper installation and materials.
Learn More →We provide bonds for all contractor trades: mechanical, concrete, landscaping, painting, and more.
View All Trades →Federal law requiring performance and payment bonds for construction contracts exceeding $150,000
Official list of Treasury-certified surety companies authorized to write federal performance and payment bonds
Bonding assistance for contractors unable to obtain bonds through regular channels - up to $6.5M guarantee
Frequently Asked Questions
Contractor license bonds are required to legally operate and follow you to every job, protecting consumers from licensing law violations. Performance bonds are project-specific, guaranteeing you complete individual contracts per terms and protecting project owners. Most contractors need both—license bonds for legal operation and performance bonds for specific projects.
Yes, typically. License bonds are required to get and maintain your contractor license (ongoing requirement). Performance and payment bonds are required for specific projects, especially public work over $150,000 or private projects where owners demand protection. License bonds let you operate; contract bonds let you bid bigger projects.
Contractor license bonds up to $25,000 qualify for instant approval with no credit check in most states (California requires underwriting). Performance bonds, payment bonds, and bid bonds always require underwriting with 1-5 business day approval depending on contract size and your financials.
License bonds typically cost $100-$300 annually for bonds up to $25,000 with good credit. Performance and payment bonds cost 0.5-4% of the contract value annually—for example, a $500,000 project might cost $2,500-$20,000 depending on your credit, experience, and financial strength.
For license bonds: basic business information (instant approval). For performance/payment bonds: 3 years financial statements, work-in-progress schedules, resume of experience, project details, and bank/surety references. Strong financials and credit scores above 680 secure best rates.
Pricing Disclosure: Surety bond rates and availability vary based on individual credit score, financial strength, bond amount, and bond type. License bond costs typically range from $100-$300 annually for bonds up to $25,000. Performance and payment bond costs range from 0.5-4% of contract value depending on creditworthiness and project complexity. The information provided is for general guidance only and does not constitute financial advice.
Regulatory Compliance: Bond requirements vary by state and licensing board. Federal requirements under the Miller Act (40 U.S.C. §§ 3131-3134) mandate performance and payment bonds for federal construction contracts exceeding $150,000. Always verify current requirements with your state licensing board or contracting agency.
Company Information: BuySuretyBonds.com is a licensed surety bond agency. All bonds are underwritten and issued by U.S. Treasury-listed surety companies with AM Best financial strength ratings of A- (Excellent) or higher. We are licensed to issue surety bonds in all 50 states.
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Whether you need a license bond to start operating or contract bonds to bid major projects, we provide fast approval and competitive rates.
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