Surety Bonds / License & Permit Bonds
for Contractors, Builders & Other Construction Professionals

As an independent contractor or builder, you're likely well versed in the world of surety bonds, especially License and Permit Bonds. License and Permit Bonds are typically required by a township or state to ensure the services expected of you are completed according to regulation.

Keep reading to learn more about License Bonds and Permit Bonds and how they affect your carpentry business.

Contractors: What You Need to Know about License Bonds /Permit Bonds

Contractors: What You Need to Know about License Bonds /Permit Bonds

For construction and contracting businesses, License and Permit Bonds are required by certain federal, state, or municipal governments as prerequisites to receive a license or permit to engage in certain business activities. These bonds function as a guarantee from a surety (usually an insurance company) to a government and its constituents that your carpentry business will comply with an underlying state and local laws relating to your industry, such as building codes and safety regulations.

For example, if your carpentry business won a bid to build the framework for a new school, usually you would buy the surety bond that would pay the school if you failed to complete your end of the contract or your performance was not up to code. The school could then use the money to pay another builder or contractor to do the job. Meanwhile, the insurance company paying the money would hold you responsible for reimbursement.

Key Details About License Bonds /Permit Bonds for Contractors

Key Details About License Bonds /Permit Bonds for Contractors

Carpentry License Bonds or Permit Bonds always involve three parties:

  • The principal (you, the contractor or builder).
  • The obligee(or the client requiring the bond).
  • The obligor (the company providing your bond).

When you enter a License Bond or Permit Bond, you are promising to perform your work and adhere to state or town regulations. The obligee is the other party to the contract, and is paying you to perform the work. Should you fail to perform the work, that's when the surety (aka obligor) steps into issue the bond pays the obligee if you fails to perform as required by the contract.

A License Bond /Permit Bond differs from most small business insurance contracts because it involves three parties instead of just two — the insurer and the insured. For builders and contractors, the primary difference between a bond and a typical insurance contract is that the surety's duty is to the obligee, rather than you, even when you pay for the bond.

License Bonds /Permit Bonds Process for Contractors

License Bonds /Permit Bonds Process for Contractors

Since surety claims are not caused by accidents, but rather, a failure to complete a project according to contract terms, ultimately the surety has a responsibility to the obligee to "prequalify" the contractor or builder for the work.

To guarantee your carpentry performance and integrity to your client, the surety must carefully evaluate your bond history and creditworthiness. During your bond application process, some questions you encounter may include…

  • Do you have any other surety bonds in force with any other surety company?
  • Has another surety company declined to write this or any previous bond?
  • Have you ever had a bond involuntarily terminated or cancelled?
  • Has there ever been a claim or legal action against any bond executed on your behalf?
  • Do you or any of your companies have any pending lawsuits, unsatisfied judgments, or liens?
  • Have you or any of your companies declared bankruptcy or become insolvent?
  • Have you or any of your companies been the subject of any legal or administrative proceedings resulting in disciplinary action?

Once performance is guaranteed, the surety will consider your carpentry experience and success when doing similar projects.

Ensure the Credibility of Your Carpentry Business

Ensure the Credibility of Your Carpentry Business

Since many contracts require that you be bondable, particularly in the carpentry industry, your carpentry business success may depend on your bondability. That is why most carpentry business owners work hard to maintain their bondable status.

Contact an insureon agent today, and one of our licensed agents will help you find a License Bond / Permit Bond that meets your carpentry contract needs.

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