Different types of Surety Bonds in California
Being the most populated state, California serves its constituents right through its thriving automotive, construction, contracting, liquor, and mortgage industries. Given the significance of these industries to the California economy, the potential risks associated with these industries have compelled the state government to require california surety bonds for the key participants of these industries, i.e., motor vehicle dealer bonds, contractor bonds, and mortgage broker bonds. SuretyNow aims to aid in the comprehension of what a surety bond is, its purpose, what types of bonds are most commonly required, and how to acquire a surety bond, all in California. Need bond services? Give us a call.
To start, it’s important to establish the basis for what a surety bond is and how it works. A surety bond is a three-party agreement that provides a financial guarantee that a contractor, business, or individual will fulfill their obligations. This financial instrument is administered by any surety company, or insurance company, and involves three parties:
Principal: The party required to obtain the bond, e.g., a contractor.
Obligee: The party requiring the bind, e.g., a government entity.
Surety: The insurance or surety bond company that guarantees the principals performance.
If the obligee or the general public believes that the principal has violated certain laws and regulations enforced by the bond, then they can file a surety bond claim against the principal’s bond for recourse. Even though the surety company will first pay the claims to the obligee, ultimately, the principal is the party responsible for paying back the money that the surety pays the obligee. For more information or bond services, feel free to give SuretyNow a call or visit our website: What is a surety bond?.
Surety bonds are significant because they ensure that the principal will comply with laws, regulations, and contractual obligations. If the principal fails to meet these obligations, the surety provides compensation to the obligee, up to the bonds limit. This is achieved in two ways:
Surety companies evaluate an applicant's credit score, financial history, and years of experience to determine both the price of the bond and the applicant's eligibility. Credit score is the most influential factor in determining eligibility and surety bond cost. Low credit scores, experienced bankruptcy, or commitment of financial crimes, will terminate eligibility. The surety bond company will not approve such an individual for a surety bond. Now, without this bond, an individual cannot obtain the necessary license status to protect the public from potential risks. This is particularly relevant for california contractor license bonds, where strict surety bond requirements must be met.
If the bonded individual commits fraudulent behavior, a claim can be filed against the bond. If the claim is validated, the surety company will pay the claim to repair the damage caused to the claimant, typically the general public or the government. This ensures financial protection for those affected by the fraudulent actions of the bonded individual. For example, a california contractor bond provides this protection by ensuring that contractors adhere to state laws and ethical business practices.
In summary, surety bonds are essential for protecting various stakeholders by ensuring that principals adhere to their obligations, with specific requirements and costs varying based on the type of bond and jurisdiction. Keep in mind, credit score is the most crucial factor in determining surety bond cost.
The three most common types of bonds in California are commercial bonds, i.e., license and permit bonds, contract bonds, i.e., performance or service bonds, and court bonds.
Commercial bonds are a type of surety bond that guarantees businesses and individuals comply with industry regulations and fulfill non-contractual obligations. They are required for the process of obtaining licenses because they protect consumers and government entities from financial loss due to fraudulent behavior. The several types of commercial bonds are:
A license and permit bond is a specific type of surety bond that ensures businesses and individuals comply with licensing requirements and regulations set by the federal government. These bonds are necessary for obtaining licenses to operate legally in various industries, such as contractors or motor vehicle dealers. If the bonded party fails to meet the terms of their license or permit, the bond provides financial protection to regulatory bodies. A good example of license & permit bond cost is the $50,000 California Motor Vehicle Dealer Surety Bond and $25,000 California Contractor License Surety Bond
A fidelity bond offers financial protection to the company or the company’s clients due to fraudulent behavior of the company’s employees, such as theft. This bond is typically used to safeguard business financial assets and maintain trust with clients. For example, insurance brokers often utilize fidelity bonds to reassure clients that their funds and transactions are secure from internal malfeasance. If employees engage in fraudulent behavior, this bond will compensate the business for any financial losses incurred.
A public official bond is a type of surety bond that ensures individuals holding public office uphold ethical and lawful performance standards. Required by government agencies. These bonds provide financial protection to taxpayers and guarantee officials’ compliance to fulfill their obligations honestly and responsibly. For instance, members of the California department may be mandated to obtain public official bonds, securing public trust and accountability, and ensuring that any unlawful and negligent actions by officials are compensated by the bond to balance any financial losses incurred.
A California Auto Dealer Bond is a type of license and permit bond required by the California Department of Motor Vehicles (the obligee) for all California motor vehicle dealers (the principal). This bond ensures compliance with state regulations within the automotive industry. For example, the California department mandates auto dealers to obtain these bonds to protect consumers from fraudulent activities and ensure financial security in compliance with the California Vehicle Industry Registration Procedures Manual. The bond amount is $10,000 for wholesale dealers and $50,000 for retail dealers, your credit score will determine bond cost.
A California Contractor License Bond is a crucial surety bond required for contractors operating in California. It serves as a financial guarantee that contractors will adhere to state laws, regulations, and contractual obligations. The California Contractors State License board mandates these bonds to protect consumers. For instance, construction projects often require contractors to secure these bonds to safeguard project owners and comply with license law.
In California, all licensed contractors who have a single job exceeding $500 value are required to have a contractor license bond cost in the amount of $25,000.
A California Notary Public Bond is a type of surety bond required by the California Secretary of State under California Government Code sections 8212-8213 for any individual who wants to work as a public notary. This bond ensures that notaries adhere to state regulations while complying to official obligations. Administered by the California Secretary of State, these bonds protect the public from financial losses due to errors or misconduct by notaries. For example, when notarizing documents related to real estate transactions or legal documents, notaries must have these bonds to ensure compliance with state license law and provide financial guarantee to clients.
A California tax preparer bond is a type of license & permit bond required by the California Tax Education Council for all individuals or companies that operate as a registered tax preparer. This bond ensures that tax preparers comply with state laws while handling clients’ tax documents and financial information. Administered by the California Franchise Tax Board, this bond provides financial protection to taxpayers by guaranteeing that tax preparers will fulfill their duties in compliance with the provisions found in Division 8, Chapter 14 of the Business and Professions Code. When assisting clients with tax filings or audit representations, tax preparers must obtain these bonds to meet license law requirements.
Also referred to as a Residential Mortgage Lender or Servicer bond, this type of license and permit surety bond is required by the California Department of Business Oversight for individuals or companies that operate as mortgage brokers in California. Administered by the California Department of Real Estate, this bond protects financial security to prospective home buyers by guaranteeing that mortgage brokers will abide by the provisions of the California Residential Mortgage Lending Act and other rules by the Commissioner of Business Oversight.
In California, mortgage brokers are required to have a mortgage broker bond in the amount of either $50,000 or $100,000.
Freight Broker Bonds, also known as BMC-84 bonds, are a type of license and permit bond that is required by the Federal Motor Carrier Safety Administration (FMCSA) for individuals or companies that operate as freight brokers or freight forwarders. This is a federal bond required for all states but it is still very popular in California. Administered by the California Department of Motor Vehicles, this bond protects shippers and carriers from financial loss from fraudulent behavior by freight brokers. For example, when arranging transportation contracts, brokers must obtain these bonds to meet license law and comply with federal regulations established by FMCSA (the obligee). The bond amount required is $75,000.
Also known as a title bond, this is a type of license and permit bond required by the California DMV for individuals or companies who would like to obtain a bonded title, specifically for individuals or agencies acting as detective agencies. According to the California Vehicle Code Sections 4157 and 4307, a defective title bond is required for owners who would like to obtain a title if they can’t provide sufficient proof of ownership. Administered by the California Department of Consumer Affairs, this bond protects clients from financial losses due to negligence, misconduct, or fraud committed by detective agencies.
This is a type of license and permit bond required by the California Department of Insurance for individuals who would like to become a licensed insurance broker. According to the California Insurance Code sections 1662-1665, insurance brokers in the state of California need an insurance broker bond before getting their insurance license. The bond provides a financial guarantee that the broker will comply with California insurance regulations. For example, when handling insurance policies or claims processing, brokers must secure these bonds to meet license law requirements and provide financial security.
Contract bond is typically required in the construction industry to guarantee that a contractor will comply with the contract they signed with the construction site owner. This is typically related to large construction projects, i.e., shopping malls, apartment buildings, etc. Administered by surety bond companies, contract bonds protect project owners from financial loss if contractors fail to meet obligations such as project completions, quality standards, or payment to subcontractors. For example, in construction projects or government contracts, contractors must obtain these bonds to meet bid bonds and ensure payment bonds compliance, providing financial security to project owners. If the contractor fails to complete the project according to the contract terms and schedule, then the project owner can make a claim against the bond and get financial compensation. For more information visit: What is a construction bond? , or contact SuretyNow with all of your needs for bond services.
There are three types of contract bonds in California:
Bid bonds are a type of surety bond used in the construction bidding process to ensure contractors submit serious bids and honor their proposals if awarded the contract. Administered by surety bond companies, bid bonds protect project owners by providing financial assurance that the contractor will enter into the contract and provide required performance and payment bonds. For example, in competitive bids or government procurement, contractors must obtain bid bonds to qualify their bids , ensuring fairness and reliability in the bidding process. If a bid is selected and the contractor whose bid is selected declines or retracts the bid, then the construction project developer can make a claim against the bond. The claim payment is typically the difference between the retracted bid and the next highest bid.
Performance bonds are a type of surety bond that ensure contractors complete projects according to agreed-upon terms and specifications. Based on the Miller Act, a performance bond is required for all federally funded projects worth $100,000 or more. If the contractor fails to finish the construction project or government contract, according to the terms, the project owners can make a claim against the bond. If the claim is proved valid, the project owners will be paid a financial compensation that can be used to hire another contractor to complete the project or repair issues caused by the previous contractor.
Payment bonds are a required surety bond for contractors who are assigned public construction projects. Administered by surety bond companies, payment bonds protect subcontractors and suppliers from non-payment by the contractor. For example, in construction contracts or public works projects, contractors must obtain payment bonds to ensure timely and full payment to all parties involved.
Court bonds refer to all surety bonds needed for an individual when going through a court of law. This is an umbrella term that can be divided into two categories of bonds:
Judicial bonds are ordered by the judge in civil cases where monetary damages are involved. They protect either party against potential financial losses from the court ruling. Examples of judicial bonds include appeal bond, bail bond, and plaintiff’s attachment bonds. Individuals appointed as guardians, trustees, or executors may need to secure judicial bonds to oversee estates or manage assets under court supervision.
Also known as a fiduciary bond, this type of bond is required for individuals appointed by the court to manage other people’s assets or care for others. Administered by surety companies, probate bonds ensure that estate administrators faithfully perform their obligations according to the law and court detectives. Probate bonds safeguard estates assets and ensure beneficiaries receive their rightful inheritances and financial guarantee. Examples of probate bonds include custodian bonds, executor bond, fiduciary bond, and guardianship bond.
The process for acquiring a surety bond is fairly similar for every state. Here are the surety bond requirements for California:
Gather all of the required information in order to fill out an online application for a bond. You will need to provide your social security number, financial information, and credit score. The most important aspect of this application is your credit score, as this determines bond cost. For more information on surety bond requirements give SuretyNow a call, or visit: How to get a Surety Bond
After you have complied with all of the surety bond requirements, you may proceed to shop around for bonds with the best premium rate for you. The quote you receive is based on a percentage of the bond amount, known as rate. The bond amount and rate go together to determine how much your bond will cost. For example, if your bond amount is $50,000 and you obtain a rate of 5%, you will pay $2500 for your bond. If your rate is 1%, you will pay $500 for your bond. You can do this on our SuretyNow website.
After you have received a quote from a surety bond company you would like to work with, you may decide to move forward with purchasing a surety bond. The next step is to complete the purchase process. For SuretyNow, if the bond is instantly purchasable, then you will be able to checkout on our site using our secure checkout. If the bond requires manual underwriting review, we will send you a secure payment link for payment upon underwriting approval. Once your payment has been received, the surety bond will be issued.
After you have completed the purchase, you will receive your sealed bond from your surety company, which you may now print and sign. This bond certificate is necessary for California contractors when they take on a construction project. Although individuals may possess a California contractor's state license, they are still required to share their certificate, license number, and surety company name with project owners. Failure to do so, or fraudulent behavior and impersonation is illegal in numerous states, project owners may consult with the contractors state license board to verify.
Once signed and printed, you are required to submit the bond to the obligee. This will allow you to continue business operations and be a part of the verified California contractors according to the contractors state license board.
Need bond services? Give SuretyNow a call.
