As a general contractor, being licensed is a requirement to legally operate and qualify for jobs. Continue reading for step-by-step instructions on how to become a licensed, bonded contractor.

What Does Being Licensed, Bonded and Insured Mean for a Contractor?

A contractor’s license ensures that general contractors:

• Pay all employees timely and fairly
• Complete work according to codes and regulations
• Protect the safety of employees and passersby
• Have the necessary education and experience 

To be eligible for licensing, general contractors, plumbers, electricians and other contract service providers must get bonded and insured. The bond and insurance policies protect the business, employees and clients from financial harm. 

What Is a Contractor’s Bond?  

Contractor surety bonds are legal agreements that hold general contractors financially responsible for upholding industry regulations. 

Contractor license bonds are legal agreements binding three parties:

1. Principal: Professional buying the bond and filing it with the obligee 
2. Obligee: The public entity requiring the contractor to file a bond
3. Surety: The provider issuing the bond and guaranteeing the contractor's obligation

If you fail to meet the bond's terms, the obligee can file a claim on the bond to compensate for any losses. You will then be expected to reimburse the surety for any claims settlements.

How to Become a Licensed and Bonded Contractor in 6 Steps 

While the requirements for a contractor to become licensed and bonded vary, most applicants must follow these six general steps: 

Step 1: Register your business with the state

Before applying for a license, you must register your business with the state or states in which you plan to work. Licensed contractors typically need to be registered as business entities, rather than individuals. 

Ask a professional  for help determining which business structure is right for you. The most common entities are: 

• Sole proprietorships
• Limited liability companies 
• Partnerships
• Corporations

Step 2: Research licensing requirements 

Research local laws and regulations to determine how to apply and what you need to be eligible for a contractor’s license. 

Application requirements vary depending on the location and type of license you need. Your contractor classification and/or license limitations will determine the type of jobs and size of projects you can work on. 

Other licensing requirements may include: 

• Industry experience
• Formal education and training
• Exams/certifications

Step 3: Purchase insurance coverage

You’ll need insurance to protect yourself and your employees from accidents, expenses and damages. Research the minimum insurance coverage requirements for your license type. 

Here are the most common types of contractor business insurance: 

• General Liability Insurance: Covers basic expenses including property damage and slip-and-fall injuries. 
• Worker’s Compensation Insurance: Covers medical bills and disability benefits for employee work-related injuries. 
• Commercial Auto Insurance: Covers damage and accident-related medical bills involving commercial vehicles. 

Step 4: File a surety bond

To become a licensed and bonded contractor, you must purchase a surety bond and file it with your local license authority. Your bond amount will depend on the type of license you are applying for as well as your location. 

Many of the SuretyBonds.com contractor license bonds are available for instant online purchase. If your bond requires underwriting, apply to receive a free quote within one business day.  

Step 5: Complete an examination

You may need to pass a pre-license course to prove your qualification for this line of work. Typical contractor classifications that require an examination include:

• Plumbing
• Roofing
• Electrical
• HVAC

Step 6: Submit your license application

Once you complete all the steps above and verify any additional requirements, you can apply for your contractor license! Submit all documents to your local licensing authority along with payment for the application fee. 

Most states offer options for either email or online application. Your licensing entity should confirm your approval within a few weeks. 

Contractor Bonds vs Insurance Policies

Surety bonds are often mistaken for business insurance. However, they’re more like a form of credit that protects your customers instead of your business:

• Business Insurance: Protects the business and its employees from damages, accidents and theft. 
• Contractor Bond: Covers the public and customers from financial loss if a contractor acts unethically or breaks industry regulations. 

Why Is Being Insured Important for Contractors?

Insurance is essential for contractors as it both protects them from civil suits and ensures they treat employees fairly. The benefits of being a licensed and insured contractor include: 

• Compliance with state requirements
• Protection for you and your business
• Assurance to your clients

Why Is Being Bonded Important for Contractors? 

A contractor bond puts the financial liability on the contractor if a harmed consumer wishes to file a claim against the contractor license bond. Being licensed and bonded as a contractor help with: 

• Eligibility for licensing and contract bidding opportunities 
• Protection for the general public and government 
• Reputation building for the contractor

Find the Contractor License Bond You Need  

Take the first step in becoming a licensed, bonded and insured contractor by applying for a surety bond today. 

Most states allow individual cities, counties, boroughs and towns to set specific contractor licensing and registration requirements. Click below to get a free quote for the contractor bond you need.

What If My Contractor License Application Gets Rejected?

Lack of specific experience documentation is one of the primary causes of rejection for contractor license applicants. Ensure that you have directly applicable experience with verifiable proof from someone you've worked with if you are self-employed.

Also, provide very thorough financial documentation to show your stability. A compilation, review or audit of your finances by an independent CPA is ideal. Simply submitting bank statements will not suffice. Contractor license bonds can help bridge the financial liability gap if you are a new business.

If you have more questions, contact us Monday–Friday at 1 (800) 308-4358. Our friendly surety experts are happy to help!