As a contractor, you’ve likely been told you need to be “bonded” — but what does that really mean? In the construction and trades world, bonds are not the same as insurance, but they are just as important when it comes to building trust, meeting legal requirements, and protecting your business.
In this article, we’ll explain the basics of contractor bonds, with a special focus on License & Permit Bonds and Performance Bonds.
What is a Bond?
A bond is a three-party agreement that guarantees a specific obligation will be met. The three parties involved are:
- Principal – You, the contractor
- Obligee – The party requiring the bond (usually a government agency or project owner)
- Surety – The insurance company that issues the bond and promises to pay if you fail to meet the obligation
Unlike insurance, bonds don’t protect you — they protect your client or the public. If you fail to fulfill your duty, the surety may pay the claim, but you’re expected to reimburse them. This is where the bond is different than an insurance policy.
License & Permit Bonds
License & Permit Bonds are required by many cities, counties, and states before you can legally operate your contracting business.
What They Do:
- Guarantee that you will follow local laws, codes, and regulations.
- Provide protection to the public in case you violate licensing rules.
Common Examples:
- Electrical contractor license bond
- Plumbing contractor bond
- General contractor license bond
Why You Need One:
If you work without a license bond where it’s required, you could face fines, lose your license, or be unable to pull permits for jobs.
Performance Bonds
Performance Bonds are typically required on larger commercial or public works projects.
What They Do:
- Guarantee that you will complete the job according to the contract.
- Protect the project owner in case you fail to deliver as promised.
If you walk off the job or don’t finish the project correctly, the surety may step in to pay another contractor to finish the work.
When They’re Required:
- On government construction projects
- On private jobs where the owner wants added financial protection
Why Bonds Matter
Having the proper bonds in place:
- Builds credibility and trust with customers and project owners
- Helps you win bids (especially for public jobs)
- Keeps your business legally compliant
Final Thoughts
Bonds are a key part of doing business as a contractor. Whether you’re just getting licensed or bidding on a major project, understanding and securing the right bonds can make or break your opportunity. At Ameriguard Insurance, we can help you get bonded quickly and affordably, so you can stay focused on building your business.
Have questions about contractor bonds or need a quote? Reach out to our team 763-767-0522 — we’re here to help.