License and Permit Bonds
License and permit bonds are surety bonds that a state, county or city requires before it issues a business license or permit. The bond guarantees that you will follow the laws and regulations that come with that license or permit, and it gives customers, the public or the government a way to recover money if you don't. Thousands of these bonds exist, and the right one depends on your industry and where you do business.
How license and permit bonds work
The bond is an agreement among three parties: you, the license or permit holder (principal); the government agency that requires the bond (obligee); and the surety that issues it. If you violate the rules your license or permit is based on and someone is harmed, they may be able to make a claim against your bond. If the claim is valid, the surety pays up to the bond amount.
Bond amount and your premium
The bond amount is the most the surety will pay on claims. It is set by law or by the agency that requires the bond, and it can range from a few thousand dollars to much more depending on the license and state. It is not the price you pay. Your premium depends on the surety's underwriting, including the type of bond, your credit and your business finances. Request a quote rather than relying on a fixed price or percentage.
Who needs a license or permit bond
Requirements vary by state and locality, but these businesses are among those most often required to be bonded:
- Contractors and skilled trades, such as general contractors, electricians and plumbers.
- Auto dealers and other businesses licensed to sell vehicles.
- Financial and service businesses, such as mortgage brokers, collection agencies and notaries.
- Businesses that need a permit to work in public streets or right-of-way, or to collect sales and excise taxes.
License bonds vs. permit bonds
License bonds are tied to an ongoing business license and usually stay in force as long as you hold the license. Permit bonds are tied to a specific activity, such as working in a public right-of-way, and may last only as long as the permit. Both guarantee that you follow the rules set by the agency, and many businesses need more than one bond.
What happens when a claim is filed
The agency may review the complaint against your license or permit while the surety separately investigates the claim against your bond. You will usually have a chance to resolve it first. If the claim is not valid, it is denied. If it is valid, the surety pays the claimant and you must repay the surety. Unlike general liability insurance, a bond does not take the cost off your hands.
Keeping your bond in force
Many license bonds renew each year or with your license, and you pay a new premium at each renewal. Letting a required bond lapse can lead to suspension or loss of your license or permit, so renew on time. If your business information or bond amount changes, your bond may need to be updated too.
Not sure which bond you need?
WWIS is based in Litchfield Park, Arizona, is licensed in all 50 states and has helped businesses with license and permit bonds for more than two decades. Call 888-518-8011 or email [email protected] and we'll help you find the right bond for your license or permit.
If you or your business needs help in obtaining a surety bond or commercial insurance give us a call!