Rapidly escalating California contractor license bond rates are a hot topic as of late and for good reason. Many contractors have seen their license bond renewals increase from around 1% of the bond premium to well over 10% in some instances. While premium changes of this magnitude may come as a surprise to unsuspecting contractors, there are opportunities to proactively lower bonding costs prior to renewal. Below are 5 simple, yet highly effective tips contractors can use to achieve lower license bond rates.
1. Check Your Credit
On of the most important factors in obtaining a low priced license bond is having good credit. For many sureties, a FICO score around 680 or so with a clean license history will qualify a contractor for premier rates. With this in mind, contractors may consider obtaining a copy of their credit report and correct any inaccuracies prior to renewal. Even positive shifts of just a few points in credit score could save hundreds of dollars per year in some circumstances. For contractors with very poor credit, it may be advisable to seek help from a qualified credit advisor.
2. Consider a Cosigner
Contractors with very bad credit may want to consider getting a cosigner. For many sureties that offer a cosigner program, the cosigner generally needs decent, but not great credit and they cannot be the contractor’s spouse. Keep in mind, however, in the event of a bond claim; a cosigner is equally responsible for any losses sustained along with the contractor.
3. Resolve Any Outstanding License Complaints
One of the most damaging issue contractors may face in their quest for low license bond rates is having a claim against a prior bond. Many sureties will not write a bond for a contractor with a prior bond claim, while others will only consider it in some circumstances . With this in mind, contractors should do everything possible to resolve potential license complaints or bond claims before they happen.
4. Shop Multiple Sureties
Not all sureties have the same underwriting requirements when it comes to contractor license bonds, and in fact, many are quite different. If you are not happy with your current license bond rate, shop your bond with multiple sureties. You may be surprised at the results.
5. Purchase a Multi-Year Bond
The tough contracting economy in California has had a dramatic negative impact on the average credit score of local contractors in recent years, which in turn has often led to higher average bond rates. If you’re a contractor with good credit and low bonding rates, consider locking in your bond for several years. While its questionable whether preferred license bond rates will go down significantly in the future, they can become exponentially more costly if a contractor’s credit or other bond rating factors become less favorable over time.
By Jeremy Schaedler