A surety bond is the broad category, and contract bonds are the type most commonly used for construction projects. Construction bond is another common term for a contract bond.
Estimated Premium Reference Table
| Bond Amount | Estimated Premium Range (0.5%–3.0%) |
|---|---|
| $250,000 | $1,250 – $7,500 |
| $500,000 | $2,500 – $15,000 |
| $1,000,000 | $5,000 – $30,000 |
| $5,000,000 | $25,000 – $150,000 |
| $10,000,000 | $50,000 – $300,000 |
Qualified contractors with strong financial statements and proven experience often secure rates near the lower end of this range, while newer contractors or those with weaker credit or financials may pay higher premiums.
Surety Bond Cost at a Glance
| Factor | Breakdown |
|---|---|
| Typical Cost | 0.5%–3% of the total bond amount |
| $1 Million Bond | Approximately $5,000–$30,000 |
| Lowest Rates | Contractors with strong financial statements, excellent credit, and proven experience |
| Highest Rates | New contractors, weaker credit, limited working capital, or higher-risk projects |
| Primary Pricing Factors | Financial strength, credit history, bond type, project size, contractor experience, and project risk |
| Is the Premium Refundable? | No. The premium is a one-time fee paid to the surety company for providing its financial guarantee |
What Is a Surety Bond?
A surety bond is a three-party agreement between the contractor or business (principal), the project owner or government entity (obligee), and the surety company that guarantees the contractor will fulfill its contractual or legal obligations.
Unlike traditional insurance, a surety bond is a financial guarantee that protects the project owner—not the contractor.
How Much Does a Surety Bond Cost?
For a $1 million bond, the cost is typically $5,000 to $30,000. Contractors with strong balance sheets and proven project history often qualify for rates around 1% to 2%, while weaker applicants may pay more.
Real-World Example: A contractor bidding on a $2,000,000 public project with a strong balance sheet may qualify for a 1% rate, resulting in a $20,000 premium. A newer contractor or one with weaker credit history could be priced closer to 3%, resulting in a $60,000 premium for the same project.
Not Sure What Your Rate Would Be?
How Are Construction Bonds Priced?
The cost of a surety bond, known as the bond premium, is priced as a percentage of the bond amount. For contract bonds, this amount is calculated based on the total value of the construction project requiring the bond.
Because the surety company assumes the risk of contractor default, underwriting works much like evaluating a commercial loan or line of credit. Underwriters assess your company’s operational capacity, capital, financial strength, experience, and character before determining your rate.
For larger bond programs, sureties may use tiered premium structures, where the first portion of the contract is priced at one rate and additional contract value is priced at lower rates, resulting in a lower effective premium.
Comparative Premium Scenarios
| Bond Amount | 0.5% Premium | 3.0% Premium |
|---|---|---|
| $250,000 | $1,250 | $7,500 |
| $500,000 | $2,500 | $15,000 |
| $1,000,000 | $5,000 | $30,000 |
| $5,000,000 | $25,000 | $150,000 |
| $10,000,000 | $50,000 | $300,000 |
Actual rates vary based on CPA financial statements, work-in-progress (WIP) schedules, personal credit, total backlog, contractor experience, and project-specific risk.
Premiums for bonds exceeding $10 million are often negotiable. Contractors with strong financial statements and proven performance histories frequently achieve lower effective premium rates than smaller or newer firms.
How Much Does a Performance Bond Cost?
A performance bond is a specific type of contract bond that guarantees the successful completion of a construction project. Performance bond premiums generally range from 0.5% to 3% of the contract value.
Because these bonds guarantee project completion, underwriters closely evaluate a contractor’s financial strength, work history, project management capabilities, and overall operational capacity. Contractors with strong balance sheets and successful project histories typically receive the lowest rates.
What Factors Determine Surety Bond Cost?
Surety companies evaluate several key factors when determining your premium:
Type of Bond: The type of bond significantly impacts pricing. Performance and payment bonds generally carry more risk than license and permit bonds or other commercial surety bonds, resulting in higher premiums.
Bond Amount: As the bond amount increases, so does the premium. Larger bonds also require more comprehensive underwriting and financial review.
Credit Score and Credit History: For many commercial and contract bonds, personal credit remains an important underwriting factor.
- 750+ Credit: 0.5%–1.5% premium rate
- 650–749 Credit: 1.0%–3.0% premium rate
- Below 650 Credit: 3.0%–10.0% premium rate (if approved)
Note: If you have credit challenges, programs like the SBA Surety Bond Guarantee Program may help emerging contractors access required bonding.
Financial Strength: For larger bond programs, underwriters look at past credit scores to review:
- CPA-prepared financial statements
- Personal financial statements
- Working capital and liquid assets
- Available bank lines of credit
- Work-in-progress (WIP) schedules
- Contractor experience and largest completed project to date
Claims History: Contractors with clean claims histories are viewed as lower risk and generally receive more competitive pricing.
State and Regulatory Requirements: Bond forms, required limits, and underwriting requirements vary by state and local jurisdiction, which can affect costs depending on where your business operates.
How Can You Lower Your Surety Bond Costs?
- Work With a Bond-Only Agency: Specialized surety agencies have access to more surety markets and greater underwriting expertise, helping contractors secure lower rates, larger bond programs, and faster approvals.
- Improve Your Credit Profile: Maintain a strong payment history, reduce outstanding debt, and regularly review your credit reports for accuracy.
- Provide Strong Financial Documentation: Complete, accurate, CPA-prepared financial statements build strong underwriter confidence and directly improve pricing tiers.
- Build a Positive Bonding History: Successfully completing small bonded projects without claims demonstrates reliability, opening the door to larger bonding capacity and lower future premiums.
Frequently Asked Questions
Can I get a surety bond with bad credit?
Yes. While applicants with stronger credit typically receive lower rates, specialty surety markets and programs, including the SBA Surety Bond Guarantee Program, can help contractors with credit challenges obtain bonding.
What credit score is needed for a surety bond?
There is no universal minimum. A credit score of 675 or higher is generally preferred for standard credit-based programs, although larger contract bonds rely heavily on financial statements and contractor experience. Smaller compliance bonds may require no credit check at all.
How are surety bond premiums calculated?
Surety bond premiums are calculated by multiplying the bond amount by the approved premium rate, which is typically 0.5% to 3% depending on the contractor’s financial strength, credit, experience, and project risk.
Are surety bond premiums tax deductible?
In most cases, yes. Surety bond premiums are generally considered ordinary and necessary business expenses. Always consult your CPA or tax advisor regarding your specific tax situation.
Can a new contractor get a surety bond?
Yes. New and emerging contractors may qualify through credit-based programs, industry experience, strong financials, or the SBA Surety Bond Guarantee Program, although initial bonding limits are often lower.
Do you get your money back from a surety bond?
No. The bond premium is a non-refundable fee paid to the surety company in exchange for providing its financial guarantee.
Maximize Your Bonding Capacity & Minimize Your Rates
The best way to determine your exact bond cost and identify opportunities to reduce premiums while increasing bonding capacity is through a comprehensive review of your surety program.
During Your Surety Program Review, We’ll:
- Evaluate your current bonding program and premium structure.
- Identify opportunities to increase your single and aggregate bonding limits.
- Review strategies for reducing premium rates.
- Explore options across more than 40 specialized surety markets.
- Develop a plan to support larger and more profitable projects.
Surety Bond Professionals is a bond-only agency serving contractors and businesses nationwide. We work with more than 40 surety markets to help our clients maximize bonding capacity, secure competitive rates, and navigate complex underwriting situations.
Need Immediate Assistance?
Have questions about surety bond costs, bonding capacity, or a time-sensitive application? Our surety advisors are ready to help. Whether you’re applying for your first bond or managing a multi-million-dollar bonding program, we’ll provide clear answers and practical solutions tailored to your business.
Surety Bond Professionals
Surety Bond Professionals is a family-owned and operated, bond-only agency with over 100 years of experience helping construction contractors maximize their bonding capacity. With corporate headquarters in Massachusetts and regional offices across the country, our expert agents are ready to assist with all of your construction bond needs. As an authorized agent for the SBA Surety Bond Guarantee Program, we have access to a broad range of surety markets to serve you.