License and Permit Bonds
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What are license and permit bonds?

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License and permit bonds

License and permit bonds guarantee that a business will complete a project in accordance with regulations and industry standards.

When do small businesses need license and permit bonds?

Contractors and builders are often required to obtain license and permit bonds, which are types of surety bonds. State regulations determine which professionals, such as roofers or general contractors, need a bond to get licensed.

License and permit bonds assure clients your business will complete a project in accordance with state laws, building codes, and other regulations. If the terms of the bond aren't met, the insurer reimburses the client up to the bond amount.

Learn more about what license and permit bonds cover.

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License and permit bonds always involve three parties:

  • The principal (your business)
  • The obligee (your client)
  • The obligor (the insurer)

Benefits of licensing and bonding

License and permit bonds allow your small business to take on government projects and work with larger clients. Because your clients know the insurer will reimburse them if your work doesn’t meet certain standards, it gives them peace of mind when they work with your business.

Insurance companies that grant surety bonds carefully evaluate your bond history and credit history before issuing a bond. That’s another reason why license and bonding insurance gives your business a competitive edge over businesses that lack this coverage.

Example of license and bonding insurance

Your construction company wins a bid to do foundation work for a new school. The terms of the contract include a $15,000 surety bond to ensure the project is completed. Your business purchases the surety bond, paying a percentage of the bond (typically between 1% and 15%) as a premium.

Halfway through the project, your business loses three employees who are crucial to completing the work. The surety bond pays the school the money needed to hire another contractor to finish the job. Meanwhile, the insurance company paying the money holds your business responsible for reimbursement.

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