Contractor Surety Bonds: Types, Cost, and How to Get One
A contractor surety bond is a three-party guarantee that protects project owners, licensing boards, and subcontractors. Premiums run 1%–10% of the bond amount depending on credit, financials, and bond type. Learn which bond you need and how to get one.
By Trades Coverage Editorial Team · Licensed review by Switchboard Risk Technologies Inc. (NPN 22071809) · Updated May 2026
Key Takeaways
Contractor surety bond premiums run 1%–10% of the bond amount, with credit score, financials, and bond type determining where you land in that range.
- A $25,000 license bond costs roughly $250–$2,500 per year depending on credit and financial strength
- Performance and payment bonds are required on federal construction contracts over $150,000 (Miller Act)
- Bonds guarantee your obligations to others — they do not replace general liability or workers comp coverage
- SBA's Surety Bond Guarantee Program helps small contractors who cannot qualify on their own
What a Contractor Surety Bond Is and Why You Need One
A contractor surety bond is a three-party financial guarantee. You are the principal. The party requiring the bond — a licensing board, project owner, or government agency — is the obligee. The surety company backs your promise to meet a specific obligation.
If you fail to meet that obligation, the obligee or a protected claimant can file a claim against the bond. The surety pays valid claims up to the bond amount. Then you reimburse the surety.
That repayment structure is the key difference between a bond and insurance. Insurance carriers absorb covered losses. A surety expects you to pay them back.
Common Triggers for Needing a Bond
Contractors typically encounter a bond requirement in one of four situations:
- A state or local licensing board requires a bond before issuing your contractor license. California requires a $25,000 contractor license bond.
- A public construction bid package requires bid, performance, and payment bonds. Federal contracts over $150,000 require performance and payment bonds under the Miller Act.
- A general contractor or project owner requires bonding before awarding a subcontract or prime contract.
- A customer asks whether you are "bonded and insured" — they want to know a surety backs your work obligations and that you carry general liability and other coverage for accidents.
Four Bond Types Contractors Encounter
Each bond type protects a different party and is triggered by a different document — a licensing notice, a bid package, or a signed contract. Use the tool below to identify which bond matches your situation.
Contractor Bond Type Finder
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License and Permit Bonds
A license bond is required by a state, city, or trade board before you can lawfully work in that jurisdiction. It protects the public when a contractor violates licensing rules or bonded obligations.
Bond amounts are set by the jurisdiction. Minnesota requires a $25,000 mechanical contractor bond before a business can contract to perform gas, heating, ventilation, cooling, air conditioning, fuel-burning, or refrigeration work.
Bid Bonds
A bid bond guarantees that if you are awarded a project based on your bid, you will execute the contract at the quoted price.
If you walk away after award, the bid bond can reimburse the owner for the difference between your bid and the next lowest bid, up to the bond's penal sum. Bid bonds filter bidders who cannot stand behind the price they submit.
Performance Bonds
A performance bond guarantees you will complete the work according to the construction contract. It protects the project owner from financial loss if you default on the contract.
Performance bonds are usually paired with payment bonds on public construction work and larger private projects.
Payment Bonds
A payment bond guarantees that subcontractors, laborers, and material suppliers will be paid for work and materials furnished to the bonded contractor.
Public property generally cannot be liened the same way private property can. The payment bond gives downstream parties a claim path when they cannot file a mechanic's lien against a government building or road.
How a Surety Bond Differs from Contractor Insurance
"Bonded and insured" means two separate protections. Contractor bonds act as financial guarantees of contractual and regulatory obligations, while contractor insurance protects the contractor against operating risks such as property damage, environmental liability, workers compensation, commercial auto, and builders risk.
Most contractors need both. The bond satisfies a legal or contract requirement. Insurance covers the accidents, injuries, and property damage that happen on the job.
| Comparison | Surety Bond | Contractor Insurance |
|---|---|---|
| Who is protected | The obligee (owner, licensing board, public) | The contractor |
| What triggers a claim | Contractor fails to meet a bonded obligation | Accident, injury, or property damage on the job |
| Who pays the claim | Surety pays, then contractor reimburses | Insurance carrier absorbs the covered loss |
| Common types | License, bid, performance, payment | GL, workers comp, commercial auto, inland marine |
| Required by | Licensing boards, bid packages, contracts | State law (WC), contracts, GCs, landlords |
If you need general liability coverage, workers comp, commercial auto, or inland marine alongside your bond, those are separate policies with separate applications and separate carriers.
What a Contractor Surety Bond Costs
You do not pay the full bond amount. You pay a premium — a percentage of the bond amount — to the surety for issuing the bond.
Surety bond premiums are usually 1% to 10% of the required bond value. A $20,000 license bond might cost $200 to $2,000 per year. A $150,000 performance bond might cost $1,500 to $15,000 per year. The exact rate depends on your credit, financials, bond type, and claims history.
What Determines Your Rate
Sureties evaluate your application the way a lender would. The factors that determine your premium:
- Credit score — contractors with scores above 700 generally qualify for the best rates and smoother approval
- Business financial statements — net worth, working capital, and debt load
- Bond amount — larger bonds require more detailed financial review
- Bond type — license bonds are simpler to underwrite than performance bonds
- Experience and job history — completed projects similar to the bonded work
- Prior bond claims — any history of claims paid against your bonds
The marketplace compares your bond application with options from 400+ carriers and markets. Licensed support is available in 22 states to help you find the right bond at the best rate for your credit and financial profile.
Your premium depends on payroll, trade scope, state, limits, vehicles, and claim history. Enter your business details to compare quotes from carriers that write your work.
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How to Qualify for a Surety Bond — and What to Do If You Cannot
Sureties evaluate three things: credit, capacity, and character. Credit means your personal and business credit history. Capacity means your financial ability to complete the bonded obligation. Character means your reputation, experience, and track record.
Credit Score Guidance
Contractors with credit scores above 700 generally qualify for the best surety rates and smoother approval. Scores between 650 and 700 can still get bonded but at higher premiums. Below 650, expect significantly higher rates, collateral requirements, or limited bond capacity.
SBA Surety Bond Guarantee Program
Small and emerging contractors who cannot meet standard surety requirements may qualify for the SBA Surety Bond Guarantee Program. SBA guarantees bid, performance, payment, and ancillary bonds issued by participating surety companies.
Eligible contracts can be up to $9 million for non-federal work and up to $14 million for federal contracts. The business must still meet the surety's credit, capacity, and character requirements, but SBA's guarantee makes the surety more willing to issue the bond.
SBA charges a fee of 0.6% of the contract price for performance and payment bond guarantees. Bid bond guarantees have no SBA fee.
What to Have Ready Before You Apply
Use the checklist below to gather what sureties typically ask for. Having these ready speeds up approval and shows the surety you are organized.
Surety Bond Prep Checklist
Gather key items before applying for a contractor license or contract bond.
Checklist
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Next steps
- Confirm the required bond form and amount with the agency, owner, or bid package.
- Separate bond requests from insurance certificates so the surety sees the right documents.
- Ask the surety or agent what financial statements are needed for the requested bond size.
Bond Application Preparation
Items sureties typically evaluate when reviewing your application.
Personal credit report (all owners with 20%+ ownership)
Pull your own report first to check for errors
Business financial statements
Balance sheet, income statement, and cash flow for the last 2-3 years. CPA-prepared or reviewed statements for bonds over $100K.
Work-in-progress schedule
Current jobs, contract amounts, amounts billed, and amounts remaining
Completed project list
Similar projects completed in the last 3-5 years with contract values
Bond form or contract requirement
The specific document that tells you what bond is needed and the amount
Business license and contractor license number
Current and in good standing
Bank reference letter
Shows your banking relationship and available credit
Source: NFP surety underwriting factors; SBA eligibility requirements
What Happens When Someone Files a Bond Claim
A bond claim is not like an insurance claim. When a valid claim is paid, the surety comes back to you for reimbursement. This is called indemnity, and it is written into every surety bond agreement you sign.
Who Can File a Claim
- License bond: the licensing authority, a consumer, or another party protected by the bond form
- Performance bond: the project owner or upstream contractor alleging you defaulted on the contract
- Payment bond: a subcontractor, supplier, or laborer who has not been paid for work or materials furnished to you
Federal Payment Bond Claim Deadline
On federal construction projects, affected subcontractors have one year from the date labor was last performed or materials were last furnished to bring a claim against the payment bond.
State payment bond claim deadlines vary. Always check the bond form and governing statute for the specific notice and filing requirements on your project.
Bond Requirements on Public Construction Projects
Federal construction contracts have clear bonding thresholds set by the Miller Act and FAR. State and local public projects set their own rules through Little Miller Acts.
| Project Level | Threshold | Bond Requirement |
|---|---|---|
| Federal | Over $150,000 | Performance and payment bonds required |
| Federal | $35,000–$150,000 | Alternative payment protections (bond, letter of credit, escrow, or other security) |
| Federal | Under $35,000 | No bond requirement |
| State/Local | Varies by jurisdiction | Little Miller Acts set their own thresholds and definitions |
Federal Miller Act Rules
The Miller Act requires performance and payment bonds for federal construction contracts exceeding $150,000. For contracts between $35,000 and $150,000, the contracting officer selects two or more alternative payment protections.
Bonds must be furnished before receiving notice to proceed or starting work. If you cannot provide the required bond before the agency issues notice to proceed, you cannot start the project.
State and Local Little Miller Acts
Every state has some form of Little Miller Act, but thresholds and definitions of public work vary. Some states require bonds on all public contracts over $25,000. Others set the threshold at $100,000 or higher. Some define "public work" broadly to include school districts and utilities. Others limit it to state-funded projects.
Always check the solicitation and the governing agency's rules. Do not assume the federal $150,000 threshold applies to state, county, or municipal projects.
Compare Contractor Bond Options
You know which bond you need and roughly what it costs. The next step is comparing real options from sureties that write your bond type, in your state, at your credit level.
Submit one quick form. The marketplace compares your application with sureties that write contractor bonds for your bond type, state, and credit profile. Licensed insurance professionals can review the options and answer questions about additional insured endorsements, workers comp, or any other coverage you need alongside your bond.
Not sure which coverages you actually need? Answer a few questions and compare a coverage plan built for your trade, employees, contracts, and vehicles.
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Frequently asked questions
How much does a $25,000 contractor bond cost?
A $25,000 contractor bond typically costs between $250 and $2,500 per year. Contractors with credit scores above 700 and clean financial history pay closer to the low end. Weaker credit, prior bond claims, or limited business history push the premium toward the high end.
What is the difference between being bonded and being insured?
A bond guarantees your obligations to a third party — a licensing board, project owner, or subcontractor. Insurance covers your own losses from accidents, injuries, and property damage on the job. Most contractors need both: the bond satisfies a legal or contract requirement, and insurance protects against operating risks.
Do all contractors need a surety bond?
Not all contractors need one. You need a bond when a licensing board requires it before issuing your license, when a bid package or contract requires bid, performance, or payment bonds, or when a project owner requires bonding before award. Check your state licensing board and any contract or bid documents for specific requirements.
What happens if someone files a claim against my bond?
The surety investigates the claim. If valid, the surety pays the claimant up to the bond amount. Then the surety comes back to you for reimbursement. Unlike insurance, where the carrier absorbs the loss, a bond claim is essentially a loan you must repay.
Can I get bonded with bad credit?
Yes, but it costs more. Contractors with credit below 650 face higher premiums and may need to provide collateral or additional financial documentation. The SBA Surety Bond Guarantee Program can help small contractors who do not meet standard surety requirements, covering contracts up to $9 million for non-federal work and $14 million for federal work.
What bonds are required for federal construction projects?
Federal construction contracts over $150,000 require both performance and payment bonds under the Miller Act. Contracts between $35,000 and $150,000 require alternative payment protections chosen by the contracting officer, such as a payment bond, irrevocable letter of credit, or escrow agreement. Bonds must be in place before work begins.
How long does it take to get a contractor surety bond?
License bonds with small amounts can often be issued within a few days for contractors with good credit. Larger contract bonds — performance and payment bonds for projects over $150,000 — require financial statement review and may take one to three weeks depending on the surety's evaluation of your capacity and experience.
Is a contractor license bond the same as a performance bond?
No. A license bond satisfies a state or local licensing requirement and protects the public if you violate licensing rules. A performance bond guarantees you will complete a specific construction contract according to its terms. They protect different parties, cover different obligations, and are triggered by different documents.