Surety bonds are essential for contractors. They help you secure public projects, comply with state licensing requirements, and earn the trust of private clients. These bonds protect project owners and prove you will fulfill your contract.
Through our partnership with Propeller Bonds, ContractorNerd makes it easy for contractors to get surety bonds. Many bonds can be purchased digitally in minutes. If underwriting is required, you typically hear back in less than 24 hours. Either way, you can skip the extra paperwork and long waits that come with traditional bond agents.
Below we’ll cover the following:
- What a surety bond is and how it compares to commercial insurance policies
- How bond premiums are calculated, including key factors (credit, financials, and bond type)
- Contract bonds explained in detail showing when you need bid, performance, payment, and maintenance bonds
- State-by-state license bond requirements with our complete directory for quick reference
- Proven strategies to increase bonding capacity even with credit or financial challenges
- Essential underwriting criteria to ensure you’re properly prepared for approval
- ContractorNerd’s bond process that gets you from application to issuance in minutes for most bonds
When you’re ready to purchase bonds, ContractorNerd + Propeller Bonds streamline the bonding process, making it faster and easier than ever before.
What is a surety bond?
A surety bond is a three-party agreement between the contractor (principal), the project owner or public agency (obligee), and the bond company (surety). The surety promises that the contractor will meet specific obligations, like finishing the work or following licensing rules. If the contractor does not meet these obligations, the surety may step in to finish the job or pay the project owner up to the bond’s limit. The contractor must then pay back the surety for any valid claims.
Surety bonds vs. insurance
| Topic | Surety bond | Insurance |
| Who’s protected | Obligee / public | Policyholder (contractor) |
| Expectation of loss | None (contractor indemnifies surety) | Some losses expected and priced in |
| Primary purpose | Guarantee obligations (performance, payment, compliance) | Transfer business risk (GL, WC, auto, property) |
| Premium after claim | Contractor repays surety for valid claims | No repayment obligation to insurer |
Types of surety bonds (at a glance)
A) Contract (project) bonds — tied to specific jobs
- Bid · Performance · Payment · Maintenance/Warranty
- Supply · Subdivision · Completion · Lien‑Release · Retention
B) Compliance bonds — tied to licensing/permits
- Contractor License Bonds (operate legally, protect consumers)
- Permit Bonds (e.g., right‑of‑way, street opening, utilities, specialty permits)
Need project‑specific construction bonds (bid/performance/payment) with pricing and underwriting detail? See the Contract Bonds (deep dive) below.
Need a contractor license or permit bond? Jump to the state directory.
Contract Bonds (deep dive)
Bid bonds
Purpose: Show you’re a serious, bondable bidder.
Typical amount: Often 5–10% of the bid (per solicitation).
If you refuse award: The obligee may claim the bond (e.g., to cover re‑procurement difference).
Pro tip: Confirm your surety can support final performance/payment bonds at your bid size before you submit.
Performance bonds
Purpose: Ensure the project is completed on time, on spec, on budget per contract.
Common claim triggers: Abandonment, chronic delays, quality/code failures, insolvency.
Surety remedies: They may finance you to finish, replace you, or bring in another contractor, choosing the option that keeps losses as low as possible.
Payment bonds
Purpose: Ensure subcontractors and suppliers are paid, preventing liens (critical on public works).
Best practices: Clear subcontracts, timely pay apps, lien waivers, prompt pay compliance.
Maintenance/Warranty bonds
Purpose: Correct covered defects for a set period after completion (often ~1 year, as specified).
Supply bonds
Purpose: Guarantee materials meet specs and are delivered as promised.
Subdivision bonds
Purpose: Guarantee developer-installed public improvements (roads, sidewalks, utilities) in new developments.
Completion bonds
Purpose: Guarantee completion by a specified date/terms—sometimes used alongside financing requirements.
Lien-Release & Retention bonds
Lien‑Release: Replace a filed mechanic’s lien with a bond during dispute resolution.
Retention (substitution) bonds: May replace cash retainage where allowed, improving contractor cash flow.
When are construction bonds required?
- Public works: Commonly required by federal, state, and local agencies.
- Private projects: Frequently required above certain contract values or risk thresholds.
- Contract terms: Bid documents and contracts specify which bonds and in what amounts.
- Subs/suppliers: May be asked to provide bonds for large or critical scopes.
How much do surety bonds cost?
Bond cost = premium rate × bond amount.
Illustrative ranges (qualification‑dependent):
- Strong financials/credit: ~0.5%–3% of the bond amount.
- Developing/credit‑impaired: ~3%–10%+ (collateral or funds control may apply).
- License bonds: Often low, fixed annual premiums for well‑qualified applicants.
Examples (for illustration):
- $25,000 license bond → ~$100–$300 annually (qualified).
- $500,000 performance bond → ~1%–3% = $5,000–$15,000.
What affects the rate: The owner’s requirements, bond type, project size and complexity, your financials and credit, your experience, and the surety’s rate filings.
Bonding capacity explained
Sureties set two program limits based on the three Cs (Character, Capacity, Capital):
- Single job limit: Largest bond you can carry on one project.
- Aggregate limit: Total bonded backlog you can carry at once.
Capacity drivers:
Working capital, net worth, profitability/cash flow, CPA or reviewed statements, WIP/backlog quality, team experience on similar‑size jobs, internal controls (estimating, job cost, safety), banking support.
How to grow capacity:
Deliver clean projects, keep timely financials (annual + interim), maintain accurate WIP, diversify backlog, strengthen controls and banking, scale in measured steps.
Get Instant Surety Bond Quotes – Most Bonds Issued in Minutes
Traditional surety bond applications can take days or weeks of back-and-forth communication with agents, involve extensive paperwork, and result in missed bid deadlines. ContractorNerd has partnered with Propeller Bonds to streamline the process for contractors with a fully digital platform that delivers instant quotes and issues most bonds in just minutes.
How ContractorNerd’s Modern Process Works
Step 1: Instant Digital Quote (2 Minutes) The online application uses smart forms designed specifically for contractors. You’ll provide:
- Basic business information and bond type needed
- Bond amount and obligee requirements
- Years in business and financial snapshot
- Previous bond history (if any)
After you submit your information, you’ll get an instant quote for most license and permit bonds. There’s no need to wait for callbacks or email replies.
Step 2: Streamlined Underwriting (Minutes to Hours) While other providers make you wait days, ourPropeller Bonds underwriting team immediately evaluates:
- Bond Classification: to ensure you’re getting the right bond type for your specific needs
- Credit & Financial Review: the system instantly assesses your qualification level for appropriate pricing
- Capacity Analysis: determine your single and aggregate limits for contract bonds
For straightforward license bonds with good credit: instant approval and issuance. For complex contract bonds: expedited review within 24 hours.
Step 3: Immediate Bond Delivery Once approved, you’ll receive:
- Digital bond delivery to your inbox
- Original bonds shipped overnight when required
- Access to your bond portfolio online
- Support for obligee-specific formatting needs
Start Your Application Today
Don’t let slow bonding processes hold you back. With ContractorNerd + Propeller Bonds, you can:
- Complete your application in minutes from any device
- Get instant quotes for most bond types
- Receive your bond the same day for most license and permit bonds
- Access contract bonds faster than traditional channels
Want a faster, easier way to get bonded? Get your instant quote now.
Contractor license & permit bonds by state (directory)
Use this directory to find state‑specific license/permit bond guidance and local notes. Municipalities may impose additional permit bonds beyond state rules.
A–G:
Alabama · Alaska · Arizona · Arkansas · California · Colorado · Connecticut · Delaware · Florida · Georgia
H–N:
Hawaii · Idaho · Illinois · Indiana · Iowa · Kansas · Kentucky · Louisiana · Maine · Maryland · Massachusetts · Michigan · Minnesota · Mississippi · Missouri · Montana · Nebraska · Nevada · New Hampshire · New Jersey · New Mexico · New York · North Carolina · North Dakota
O–W:
Ohio · Oklahoma · Oregon · Pennsylvania · Rhode Island · South Carolina · South Dakota · Tennessee · Texas · Utah · Vermont · Virginia · Washington · West Virginia · Wisconsin · Wyoming
FAQs
What is a surety bond in construction?
A financial guarantee that a contractor will fulfill specific obligations—such as finishing the project or complying with codes. If the contractor defaults, the surety may arrange completion or compensate the obligee up to the bond’s penal sum.
What’s the difference between performance and payment bonds?
Performance guarantees completion per contract; payment guarantees subs/suppliers are paid.
How much do construction bonds cost?
Typically a small percentage of the bond amount (often ~0.5%–3% for strong profiles; higher for developing/credit‑impaired).
What’s a typical bid bond amount?
Solicitations often require 5–10% of the bid (confirm your bid docs).
Are surety bonds refundable?
Generally no. Premium is earned when the bond is issued; limited pro‑rating may apply for some early cancellations.
Do private projects require bonds?
Often, yes. Especially on larger or higher‑risk commercial jobs. Check your contract.
Do owners usually require 100% performance and payment bonds?
Many obligees require 50–100% of the contract value for each—verify the contract and bond forms.
What is bonding capacity?
Your approved single job and aggregate limits, driven by financial strength, experience, and controls.
Can I get a bond with bad credit?
Often yes. Expect more documentation, possible collateral or funds control, and smaller initial limits.
Can a retention bond replace cash retainage?
Sometimes. Some owners accept a retention/substitution bond to release cash, subject to contract terms.
What documents will the surety want to see?
Company and owner info, licenses, CPA/reviewed statements, interim financials, AR/AP agings, WIP, bank line details, and the bid/contract package.
Do surety bonds replace insurance?
No. Bonds guarantee obligations; insurance covers business risks (GL, WC, auto, property, builder’s risk).