How Much Does a California Contractor Bond Cost?

TLDR: One of the most common questions California contractors ask is how much will my contractor license bond cost. Unfortunately, this question has not been answered well. This blog article explores in detail the factors that affect the contractor license bond premium, example premium rate, rate comparison among different carriers, historical price trend of the contractor bond, and some frequently asked questions and answers

How much will my contractor cost? 

Below is an example pricing table based on all the carriers SuretyNow works with. 

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Note that the table above is the best rate from a number of surety carriers, not a single carrier. No single carrier offers the most affordable rates for all applicants. Depending on the credit score of the applicant, the best surety carrier choice may differ. For example, a candidate whose credit score is in the high 800s may get his or her cheapest rate from Hudson Surety but a candidate whose credit score is in the mid 500s may not even qualify for a bond from Hudson Surety. For this candidate, maybe Merchant Bonding Company can offer the best rate. Therefore, it is crucial to find a surety agent who will obtain quotes from a variety of carriers. SuretyNow is appointed with 10+ surety carriers and we will always present the most affordable rate to our customers.

What are the factors that affect bond price? 

Given that the contractor bond price (aka bond premium) is the product of bond coverage amount and the rate on the coverage amount, the change in either factor would result in a change in bond premium. The contractor license bond coverage amount is $25,000 for all applicants. The rate on the coverage amount is determined by the following factors: 

1. Credit Score

• Some carriers offer a flat rate solely based on the applicant's credit score. For example, a credit score of 800+ could imply a 0.5% rate on the $25,000 bond coverage, which equals to $125 bond price whereas a credit score of 525-574 could imply a 10% rate on the $25,000 bond coverage, which equals to $2,500 bond price

2. Years of Experience

• The more years of experience, the more likely the applicant will get lower rates. More years of experience without any claims on the bond indicates that the contractor has high ethical standards, is experienced in his or her trade, and follows industry regulations. These contractors will be less likely to cause any claims being filed against them.

3. License classification

• Some classes of contractors may inherently have more risks than others, at least in the eyes of the surety carriers. As a result, the rate on those bonds tend to be higher than other lower risk contractors. Roofers and pool contractors need a different and more expensive contractor license bond than all other contractors. For contractors other than roofers and pool contractors, class B general building contractors are seen as higher risks than C10 electrical and C20 HVAC contractors, so they face a higher rate than C10 and C20 contractors.

4. Any derogatory information on the applicant

• Many carriers also look into whether the applicant’s current bond or past bond had any claims on them, whether license has been suspended, whether the applicant has any felony convictions, and whether applicant has any bankruptcy claims. Most of the time, this derogatory information can either result in an increase in the rate. However, sometimes, a piece of derogatory information can result in an outright decline of the applicant. 

What are some examples of bond rate? 

As mentioned above the factors that determine the bond price, below is an example of a rate card of a surety carrier: 

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Ultra Preferred

1. 720 or higher credit score 
2. No significant derogatory information such as bankruptcies, unsatisfied judgment, and serious late payments, claims on the bond 
3. Licensed and bonded consecutively for the last 3 years, with no claim history

Preferred

1. 650 or higher credit score 
2. No significant derogatory information such as bankruptcies, unsatisfied judgment, and serious late payments, claims on the bond 

Standard

1. 625-649 credit score 
2. No significant derogatory information such as bankruptcies, unsatisfied judgment, and serious late payments, claims on the bond

Discount options on premium amount

Some carriers offer discount options for contractor bonds. Below are some factors that could result in a discount in your bond: 

• First time contractor licensee sometimes are offered a flat rate of $150, regardless of their credit score
• If the contractor already has another bond with the same surety carrier, then the surety carrier can often provide a discount due to existing client relationship
• If the contractor wants to buy more than one bond from the same surety carrier, then the surety carrier can often offer a bundled deal
• If the contractor pays for a multi-year bond, he or she will get a discount on the annual premium

How much cheaper is a multi-year bond compared to a one-year bond?

Generally, when annual premiums for contractor license bonds are paid in advance for more than one year, a discount rate is applied to the annual premium. Please see the example below for a multi-year discount program provided by one surety carrier. This basically means if you buy a two-year bond, you can get a 12% discount on the 2nd year premium. If you buy a 3-year bond, you can get a 12% discount on the 2nd year premium and 21% on the 3rd year premium. 

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How different are the prices quoted by different surety carriers

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As you can see above, for the same credit score tier, different carriers have vastly different rates and no single carrier offers the lowest pricing for all credit score tiers. In fact, some carriers may not accept people of low credit score whereas others can still offer decent prices for the low credit score candidates. It is very important, therefore, to work with a surety agency that is appointed with a lot of carriers because they can find a good rate for you regardless of your credit score.

Has the price of CA Contractor Bond changed much over the years? 

As mentioned earlier, the price of CA Contractor Bond is a product of the bond coverage amount and the rate on the bond amount. The bond coverage amount is determined by California Contractor State License Board (CSLB) based on the inherent risk involved in every licensee and this amount is uniform across all licensees. However, the bond coverage amount of CA Contractor License Bond has consistently gone up since 2016, reflecting CSLB’s view that the risk involved in each and every licensee has increased overtime. Before January 1, 2016, the bond coverage amount required was $12,500. On January 1 2016, the bond coverage amount was increased to $15,000. On January 1, 2023, the bond coverage amount was increased again to $25,000. 

In regard to the rate of the bond, due to the number of claims that have risen over the past few years, surety carriers themselves have suffered many losses from the CA Contractor Bond market. In fact, some carriers, such as Markel Surety /SureTec,  left the CA Contractor Bond market completely due to the high loss in their bonds. Many other surety companies raised the rates for each risk category over the years.  

Are there any Financing options? 

Carriers understand bond premiums can sometimes be very high. Therefore, some carriers offer financing options. For example, one carrier offers 30% down payment and 10% per month for the next 7 months. 

FAQ: 

Is a credit check required for the CSLB bond?

Yes, it is required to obtain a CSLB Bond. As mentioned earlier, the price of the bond is mainly dependent on your credit score. 

Will the required credit check hurt my credit score? 

No, the credit check is only a soft inquiry, which does not impact your credit score. 

What credit score is my soft credit check based on?

The check depends on the carrier. Some carriers will request your credit score from one of the three credit bureaus (Equifax, Experian, TransUnion) but others will request your credit score from all three credit bureaus.  

Can I get a price estimate without checking my credit?

Yes, SuretyNow actually gives you a price estimate if you provide us with your credit score.

When did the California contractor license bond amount increase to $25,000?

Effective January 1, 2023, the CSLB contractor license bond and qualifying individual bond amounts increased to $25,000. This change was passed as a part of California Senate Bill 607, which was signed into law September 28, 2021

Where can I find the rate of the various surety carriers?

The best place to find the rate of different surety carriers serff filing. It is a little difficult to find the rates due to the complicated language in it. 

Glossary of terms: 

Bond Amount / Bond Coverage: aka penal sum, is the maximum amount of financial compensation that the surety company is obligated to pay if the contractor fails to meet their obligations under the terms of the bond. The bond amount is usually set by the California State Licensing Board (CSLB) and is based on the nature of the obligation and the potential financial risk involved.

Premium: premium is the amount of money that a bond is priced at. It is basically the insurance term for price

Surety Carrier: a company that underwrites surety bonds. Surety carriers are typically insurance companies that specialize in providing surety bonds to businesses and individuals.