In a number of states, roofing contractors need to get licensed in order to perform roofing work. Obtaining a roofer license bond is a common licensing requirement. Not all states require a roofing contractor license and bonding, but contractors may have to get a bond to meet county criteria, too.
Even if you’re not new to bonding, the concept of how surety bonds work may be a bit difficult to grasp. However, it’s important to understand the basics if you need to get bonded as a part of your contractor licensing.
Besides a legal requirement to fulfill, bonds are also a strong sign for your customers that you are safe to do business with. Being licensed and bonded is one of your advantages on the market.
Here’s an overview of the states which require roofing contractors to obtain a bond, as well as the most significant facts about bonding that matter for your roofing business.
Where You Need to Post a Roofing License Bond
There is no nationwide requirement for roofing license and bonding. Each state defines its rules regulating roofing specialists. Usually state contractor license boards are in charge of the licensing process. They include roofing as one of the specialty contractor licenses that can be obtained. Additionally, towns and counties may impose their own licensing requirements for contractors operating on their territory.
If you want to operate in California, Texas, Minnesota, Oklahoma, Illinois, or Arizona, you will have to obtain a roofing contractor license and bond. The bond amount in Oklahoma is $5,000. In Illinois it is $10,000. California and Minnesota roofers have to obtain a $15,000 bond. Roofers in Texas have to post the biggest bond amount—$100,000.
Town and county licensing varies across the country, so it’s best to check with your local authorities about their exact requirements and bond amounts. In some cases, you will need to obtain a general contractor license and bonding, while other licensing bodies will require a special roofing license and bond.
How Surety Bonds Work
Roofer license bonds are a type of contractor license bonds, which are required from a number of construction specialists. As such, they are a contract between your roofing business, the licensing authority, and a surety. The bond provider backs your contractorship and guarantees financially for you in front of the local or state body issuing your license.
In order to get bonded, you need to pay a bond premium. It is a small percentage of the bond amount that you have to obtain. The premium is determined on the basis of your financial situation. Your surety provider examines your personal credit score, as well as business finances and any assets and liquidity. That’s how it can assess how risky your profile is.
If your finances are in good shape, your bond premium is likely to be in the range of 1 percent to 5 percent. For a $15,000 bond, this can mean a bond price of $150-$750. To reduce your bond premium, you can work on improving your credit score and financials before you apply for the bond.
As you need to stay bonded throughout your licensing period, you can decrease your bond cost with every bond renewal.
Responsibilities Under the Bond
Licensing authorities require a surety bond from roofing specialists in order to exercise a higher level of control over their operations. The purpose of the bond is to protect your customers.
However, it does not protect your business like insurance does, for example. It ensures your compliance with relevant laws by providing an extra layer of guarantee for the general public. In practical terms, this means an extra assurance that you will perform the contractual roofing work you have committed to.
In case you transgress from your contractual and legal obligations, the bond can provide a financial compensation for an affected party via a claim. Such situations include not completing the work you have agreed to in a contract, delaying the completion, delivering low-quality work, or similar issues with performing your contractual agreements.
If a claim against you is proven, you are liable to reimburse the claimant up to the penal sum of your bond. If your bond is, say, $15,000, that’s the maximum compensation that can be claimed.
At first, your surety may cover the claim costs. This is the immediate protection for consumers who have been negatively affected by your actions. However, your responsibility under the bond indemnity agreement is that you have to repay the surety fully. This means that the surety bond functions similarly to an extra line of credit, which is extended to your business temporarily.
Bond claims can be quite costly for your business, not only in terms of finances, but also by harming your reputation as a professional in the field. The wisest course of action is to avoid them.
Roofing contractors in a number of states have to obtain a surety bond as a part of their licensing. If you’re launching your business as a roofer, make sure to check with your state authorities about the requirements you have to meet. This will ensure your legal compliance, as well as a smooth start in your trade.
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Source: roofingmagazine.com =>Bonding 101: What Do Roofing Contractors Need to Know About Bonds?