Why California Contractors Need a Contractor License Bond

The California Contractors State License Board (CSLB) requires that all contractors in the state have license bonds before performing construction work in the state.

Now, you may ask yourself why a contractor might require a license bond before commencing on any project.

Normally, a contractor license bond is seen as a cushion to the consumers against the rogue contractors; it serves as a protection for the consumers by ensuring that the contractor meets the contractual obligations, including quality workmanship, completion of a project and much more.

However, the contractor licenses bonds aren’t one-sided but are similarly beneficial to the contractors as well, and in the text below, we shall highlight some of the reasons why a contractor needs a California contractor bond.

Prevents Penalties

The first reason why a contractor would want to have a contractor license bond is to avoid the penalties that come with practicing their profession without a license bond.

More often than not, you’ll realize that a majority of the industries, particularly construction, requires that the practitioners be bonded.

Failure to operate without a bond is illegal, and you’re likely to face criminal charges and hefty fines as well.

Customer Confidence

Understandably, clients are usually wary when dealing with strangers for their project, especially considering the increasing level of raud.

However, if your company is bonded, it will increase the customer’s confidence levels because they know your company can be held accountable for any misdeeds, including non-performance.

More importantly, they know that they don’t risk losing large sums of money in case you fail to deliver on your promise.

Reduces Unqualified Competition

Before a contractor is issued with a license bond, they must undergo a thorough review process that assesses their financial health, performance, qualifications, and more.

Generally, applicants with a poor credit history, non-qualified, or even a questionable history usually have a hard time securing a bond to operate legally.

So, through the bonding process, contractors can benefit from the reduction of unqualified competition.

Stakeholder Protection

A surety bond is quite instrumental in protecting the interests of other parties involved in the contract.

This way, everyone involved in the business contract, including the suppliers, workers, and even sub-contractors, can be assured that they’re going to get their payment because their contractor is bonded and will make the payment happen.

And so, as a contractor, you’ll not have a challenging time finding third parties to work with or for you.

Safety

As we had mentioned in the introduction, a contractor license bond will also protect the contractor from the rogue clients.

Performing like a double-edged sword, a contractor license bond will similarly provide a defense against false claims leveled against your company.

See, a license bond acts as a clear cut representation if a claim is launched against you and might even favor you if you didn’t breach the agreement.

Generally speaking, the signing of the indemnity agreement is all about trust and responsibility, and it covers everyone.

Financial Benefits

A contractor license bond has numerous financial benefits to a company, including providing funding flexibility by offering contractors the option of setting up a separate line of credit with third parties.

In some instances, bonds serve as collateral when taking up a loan, and this way, they’ll remove growth constraints, promote better cash flow, and free up valuable working capital.

Open New Opportunities

Regardless of the industry you are at, having your company bonded will open up a greater number of business opportunities since you’ve already demonstrated you have the financial strength and ethical business practices.

Conclusion

A contractor license bond is not only beneficial to the consumers, as many people tend to put it; you’ve already seen that your business stand s to gain a lot by getting bonded.

 

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