Florida Contractor License Bonds
Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.
What Are They?
The purpose of a Florida contractor license bond is to provide financial protection for the licensing authority. The bond indemnifies the licensing authority against liability for any financial harm caused by a licensed contractor’s unlawful or unethical business conduct. The bond also provides a way for any party experiencing such financial harm to be compensated for the monetary damages.
Who Needs Them?
Florida no longer requires a surety bond as a condition for licensing at the state level. However, there may be a bonding requirement in the counties and cities that issue local licenses to contractors working in those jurisdictions. Be sure to find out the licensing and bonding requirements in the areas where you do business as a contractor.
How Do They Work?
The surety bond business has a vocabulary of its own. The three parties to a Florida contractor license bond are referred to as the obligee, the principal, and the surety. The obligee is the local licensing authority requiring the bond, the principal is the contractor purchasing the bond, and the surety is the company guaranteeing the bond. It’s important to understand the nature of that guarantee.
The surety bond agreement legally obligates the principal to pay valid claims against a Florida contractor license bond. The surety guarantees that they will be paid but is indemnified against legal liability for the claim. So, if the principal is unable to pull together the funds to pay a valid claim right away, the surety will pay it on the principal’s behalf. In effect, the surety’s payment to the claimant is a loan to the principal—a debt that the principal must repay according to the terms established by the surety. Not repaying the debt within the time allotted puts the principal at risk of being sued by the surety and having to pay court costs and legal fees on top of the claim amount.
What Do They Cost?
How much a given principal will pay for a Florida contractor license bond depends on the required bond amount set by the obligee and the premium rate determined by the surety through underwriting. Not all principals will be assigned the same premium rate.
The surety’s main concern is the risk of not being repaid for the debt created by paying a claim on the principal’s behalf. That risk is assessed largely on the basis of the principal’s personal credit score. A high credit score is a strong indication that the risk of non-repayment is low, which makes a low premium rate appropriate. However, a low credit score calls the principal’s ability and willingness to pay into question and leads to a higher premium rate to offset the greater risk.
A well-qualified principal typically will be assigned a premium rate in the range of one to three percent.
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