As a handyman, you may need to obtain surety bonds as a requirement for state license or specific client contracts. Surety bonds provide a guarantee that the handyman will fulfill the obligations of the underlying contract. If the handyman fails to complete the job or defaults in other ways, the surety company compensates the property owner for losses up to the bond penalty amount.

This comprehensive guide will examine key topics related to surety bonds for handymen, including:

  • What are Surety Bonds and How Do They Work?
  • Why Handymen Need Bonds
  • What Exposures Do Bonds Cover?
  • Types of Surety Bonds for Handymen
  • What is the Bid Bond Process?
  • Bond Claim Scenarios
  • What is the Cost of Bonds for Handymen?
  • How To Get Bonded as a New or Risky Handyman
  • Maintaining a Strong Bonding Relationship
  • State Bond Requirements for Handymen

What are Surety Bonds and How Do They Work?

A surety bond is a three-party agreement between the handyman, called the principal, the property owner, called the obligee, and the surety company. The surety company agrees to guarantee that the principal will fulfill the terms of the underlying handyman contract.

If the handyman fails to complete the work or otherwise defaults, the property owner can file a claim on the bond. The surety company will then either arrange for the handyman to complete the project or pay the obligee for losses covered by the bond. This guarantee provides financial security and incentive for the handyman to adhere to the contract.

The surety bond transfers risk away from the property owner by ensuring compensation if the handyman causes damages or fails to deliver. It also prequalifies the handyman, confirming they are properly licensed, bonded, experienced, and able to take on the job.

Surety companies carefully underwrite applicants to validate their technical skills, financial strength, equipment, personnel, and operational controls can handle the desired project. This underwriting process gives the property owner assurance in the handyman’s execution capabilities.

Why Handymen Need Bonds

While surety bonds are not mandatory everywhere, they are required by many municipalities and property owners for major home repair and construction jobs. Typical bond requirements include:

License and Permit Bonds: Many states and cities mandate handymen carry a license and permit bond to maintain active status or work in their jurisdiction. This covers penalties if the handyman violates codes or regulations.

Bid Bonds: Often required when bidding on large home improvement projects. The bid bond assures the obligee you will enter into the contract if selected as the winning bidder.

Performance Bonds: Protects against losses if you fail to complete the handyman project per the contractual terms. Covers costs for the obligee to hire a replacement contractor. Usually the largest bond on a project.

Payment Bonds: Guarantees you will pay all subcontractors and suppliers for their materials and services on the project. Protects against liens on the property.

Even when not legally mandated, many homeowners looking to hire handymen for major renovations or additions may require bonds to share project risks. Being able to provide the proper surety bonds shows you are a qualified, bonded contractor suitable to work on major handyman projects.

What Exposures Do Bonds Cover?

Surety bonds strictly cover failure to satisfy your contractual obligations. The exposures depend on the bond type:

License and Permit Bonds: Penalize infractions of codes, laws, and permit conditions.

Bid Bonds: Guarantee you will enter into the contract if selected as the winning bidder and provide necessary performance/payment bonds.

Performance Bonds: Compensate for failure to complete the contracted handyman work properly or on schedule. This accounts for most losses.

Payment bonds: Cover failure to pay subcontractors and suppliers for labor/materials per your contracts. Protects against liens.

Surety bonds do NOT cover general business liabilities like injury claims, property damage, faulty workmanship corrections, cost overruns, etc. These are insured under your standard business insurance policies. The surety bond simply guarantees your base contractual compliance.

Types of Surety Bonds Used By Handymen

There are several types of surety bonds that handymen need to be familiar with:

License and Permit Bonds: Required by many jurisdictions to maintain an active handyman license or obtain permits. Covers fines for violations. Typically $5,000 – $10,000.

Bid Bonds: Guarantee you will enter into the contract if awarded the project. Usually set at 5-10% of the total bid amount.

Performance Bonds: Protects against default. Equal to 100% of the contract price.

Payment Bonds: Guarantees you will pay subcontractors and suppliers. Usually 30-50% of contract price.

Maintenance Bonds: Warranties corrections for defective work during a set period post-completion, usually 1 year. 25% of contract price.

You may need to obtain a combination of bonds on a large handyman project. The specific requirements will be detailed in the project specifications.

What is the Bid Bond Process?

Bid bonds support contract bidding by guaranteeing the handyman will enter into the contract if they are the winning bidder. Here are key aspects of the bid bond process:

  • The project specifications indicate if a bid bond is required and the dollar amount. Usually 5-10% of total bid.
  • Obtaining a bid bond indicates the handyman has bonding capability and is serious about taking on the project.
  • The bid bond is submitted with the project bid to prove bonding ability. This makes the bid responsive.
  • If the contractor wins the bid, they move forward with formal contract execution and providing required performance/payment bonds.
  • Contractors who win bids but fail to enter into the contract forfeit their bid bond to compensate the loss.
  • Unsuccessful bidders do not forfeit their bid bond. It shows they participated in good faith.

Bid bonds prequalify bidders and create disincentives for inflated bids. Handymen bidding on major home projects should expect to provide these bonds.

Bond Claim Scenarios

Property owners will file a claim against surety bonds if the handyman fails to satisfy the bonded contractual obligations. Common claim scenarios include:

License and Permit Bonds:

  • Performing unlicensed handyman work illegally.
  • Violating permit conditions like doing unauthorized work.
  • Failure to pull required permits before starting handyman work.

Bid Bonds:

  • Refusing to enter into contract after winning the bid.
  • Being unable to obtain required performance/payment bonds.
  • Withdrawing bid and refusing the contract.

Performance Bonds:

  • Failure to complete all contracted handyman work.
  • Breaching warranties or guarantees.
  • Failure to meet quality standards or compliance requirements.
  • Defaulting due to bankruptcy or closure.

Payment Bonds:

  • Failure to pay subcontractors, suppliers, and laborers their contracted amounts.
  • Subcontractors placing liens on the property for nonpayment.

The surety investigates claims and compensates valid losses up to the bond penal sum. Handymen should avoid claim situations through proper licensing, permitting, bidding practices, contract execution, financial planning, and project management.

What is the Cost of Bonds for Handymen?

Surety companies charge an annual premium based on the bond type and amount. Typical rates range from 1-3% of the bond penal sum. For a $10,000 license bond, the premium may be $100 – $300 per year. On a $50,000 performance bond, an annual premium might run $500 – $1,500.

Factors that influence surety bond premiums include:

  • Penal bond sum amount. Higher sums mean higher premiums.
  • Handyman’s financial strength and stability. Weak firms pay more.
  • Handyman experience, reputation, and capabilities. New firms pay more.
  • Contract terms, risks, and probabilities of default. Complex projects cost more.
  • Surety company’s underwriting guidelines and rates.
  • Local bonding regulations and requirements. Some regions cost more.

Established licensed handymen with solid finances/operations can often secure reasonable premium rates. Weaker handymen may need collateral or pay very high premiums to obtain bonds. Overall though, premium costs are standard for running a handyman business seeking major home improvement projects. Understanding the cost of surety bonds for a handyman can help you make informed decisions about your business insurance needs.

How Can Handymen With Poor Credit or Finances Get Bonded?

Sureties evaluate three key criteria when deciding to approve a handyman for bonding:

  • Capacity: Your technical skills, experience, personnel and equipment to perform the work properly.
  • Capital: Your financial strength and resources to operate smoothly.
  • Character: Your reputation, credit profile, reliability and transparency.

Handymen with poor personal credit, finances, or limited operational history will often face greater underwriting scrutiny. But there are steps you can take to improve bondability:

  • Offer explanation and documentation to demonstrate past financial issues were temporary anomalies or isolated events rather than permanent weaknesses or mismanagement.
  • Seek smaller bond amounts to start as a way to demonstrate you are a reasonable underwriting risk. Aim to build up higher bonding capacity over time.
  • Present to the surety your qualifications, training licenses, equipment, key personnel, safety procedures, etc. to showcase your technical capacity even if finances are less stable.
  • Provide the surety with strong client references and testimonials regarding past quality work, reliability, and standing in the handyman community.
  • Offer collateral such as letters of credit or liens on property to offset perceived risks of weak finances.
  • Applying through a handyman group program may provide the extra backing needed to get approved.
  • Work with a knowledgeable surety bond producer who can advocate to the surety on your behalf.

Reputable handymen with sound technical capabilities can often obtain bonding even with some financial or credit concerns. The key is being transparent and demonstrating you are a reasonably good underwriting risk overall.

How Do Handymen Get Surety Bonds?

The most effective way for handymen to obtain surety bonds is to work with an established surety bond producer that specializes in the home repair trade and represents multiple surety carriers. There are several advantages to using a specialist:

  • They understand the unique risks and exposures of handyman businesses. This helps tailor the right bond types and coverage amounts.
  • They represent multiple surety carriers. This allows competitive quotes and maximum eligibility to find bonds despite credit/financial challenges.
  • They can advise on local bond regulations and requirements for handymen in your municipality or region. Ensures compliance.
  • They advocate for the handyman during underwriting. This facilitates approval and best terms/rates.
  • They handle all paperwork, documentation, renewals, and compliance. Bonds stay current.
  • They assist with claims handling and procurement of bond replacements if needed.

General insurance agents who do not specialize in surety bonds may not represent multiple surety carriers or understand nuances facing handymen. This can limit options.

Going direct to a surety carrier without an intermediary producer can also be challenging for handymen:

  • Carriers may decline to underwrite individual handymen they view as too small. Producers get around this.
  • Paperwork, financial disclosures, and processing requirements can be arduous for handymen without expert support.
  • Lack of advocacy during underwriting may lead to denials or bad terms where a producer could negotiate improvements.
  • Ill-informed decisions on bond type or amount selection are more likely without an advisor.

The best approach is to have an expert surety bond producer guide handymen through education, market access, paperwork, compliance, renewals, claims, and everything bonding-related. Their expertise and advocacy is well worth the modest producer commission.

Maintaining a Strong Bonding Relationship

Once initially approved for bonding, handymen must continue exhibiting the 3C’s of capacity, capital, and character to maintain bondability. Smart practices include:

  • Pay premiums and renew bonds on time to keep coverage continuous. Lapses raise concerns.
  • Build up bonding capacity gradually over time through good project performance.
  • Maintain proper licensing and continue education/training. Stay current on codes.
  • Perform responsibly on jobs and develop a reputation for meeting contract obligations. Limit bond claims.
  • Manage finances prudently including proper AP/AR management, controlling overhead, and maintaining profitability and liquidity.
  • Proactively communicate any issues, disputes, delays, or changes on bonded projects to avoid surprises or claims.
  • Provide timely financial statement updates to the surety so they can monitor the company’s ongoing health.

By demonstrating the capacity to handle larger home improvement projects successfully over time, handymen build up bonding capacity and maintain continuous access to surety support. This enables bidding on ever-larger private sector jobs.

State Bond Requirements for Handymen

Bond requirements for handymen vary widely across the United States. Here is a summary of key state-level surety bond mandates:

Alabama – No bond required.
Alaska – $5,000 license bond required.
Arizona – $10,000+ license bond required.
Arkansas – No bond required.
California – $25,000+ license bond required.
Colorado – No statewide requirements.
Connecticut – No statewide requirements.
Delaware – No statewide requirements.
Florida – No statewide requirements.
Georgia – $25,000 license bond required.
Hawaii – $20,000 license bond required if necessary.
Idaho – No statewide requirements.
Illinois – No statewide requirements.
Indiana – No statewide requirements.
Iowa – No statewide requirements.
Kansas – No statewide requirements.
Kentucky – No statewide requirements.
Louisiana – $10k bond only for Residential License.
Maine – No statewide requirements.
Maryland – $20,000+ license bond required.
Massachusetts – No statewide requirements.
Michigan – No bond required.
Minnesota – No bond required.
Mississippi – No bond required.
Missouri – No statewide requirements.
Montana – No statewide requirements.
Nebraska – No statewide requirements.
Nevada – License bond required.
New Hampshire – No statewide requirements.
New Jersey – No statewide requirements.
New Mexico – $10,000+ license bond required.
New York – No statewide requirements.
North Carolina – No statewide requirements.
North Dakota – No bond required.
Ohio – No statewide requirements.
Oklahoma – No statewide requirements.
Oregon – No statewide requirements.
Pennsylvania – No statewide requirements.
Rhode Island – No statewide requirements.
South Carolina – No statewide requirements.
South Dakota – No statewide requirements.
Tennessee – No bond required.
Texas – No statewide requirements.
Utah – No statewide requirements.
Vermont – No statewide requirements.
Virginia – $10,000 surety bond required.
Washington – $6,000 license bond required.
West Virginia – No bond required.
Wisconsin – No bond required.
Wyoming – No statewide requirements.

This summarizes key state-level surety bond requirements for handymen. Local jurisdictions may also mandate bonds and handymen should always verify rules in their operating area. Bonding regulations vary but are essential for major home projects. Partnering with a knowledgeable surety bond producer facilitates compliance and access to bonding.

Conclusion

Bonding provides critical prequalification and financial security for handymen pursuing major home improvement projects. Bid, license, permit, performance and payment bonds validate handymen to property owners while guaranteeing contractual obligations will be met. Handymen can work with expert surety bond producers to navigate underwriting, secure competitive rates, and maintain continuous bonding even with financial challenges. Meeting municipal and state bonding regulations positions handyman contractors for stable bonding relationships and growth opportunities into larger private sector jobs.