License and permit bonds are a very broad category of commercial surety bonds. Many states, cities, and counties require these surety bonds before issuing licenses and permits in their jurisdictions.
The person or company seeking a license is The Principal on a License Bond or Permit Bond. The Public Entity issuing the License or Permit is The Obligee. The Surety is the third-party Bond company that is guaranteeing the Principal’s compliance in exchange for premium.
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Although each Bond may be different, License and Permit Bonds generally guarantee that The Principal will comply with all rules, laws and ordinances associated with that professional license or permit. Often, License Bonds give the public a means of restitution if the Principal Licensee breaches their duties or laws.
In order to be licensed to do business in a state, a person or company performing construction work, may need to be licensed. As part of that licensing, they may need to provide and maintain a contractor license bond. This type of license bond would generally product a customer or the public if the contractor does not perform their work according to local laws and regulations.
Suppose a company needed to transport extra heavy equipment on a local road. The municipality may require the hauling company to purchase a permit and obtain an overweight permit bond. This bond protects the municipality if the heavy load damages the road or surrounding areas.
Most License and Permit Bonds are freely written. In fact, many can be written by Axcess Surety instantly and without a credit check. Larger or more complex Bonds may require a credit check on the Principal(s) but can still be obtained quickly and easily. Even those with credit challenges can get these bonds fairly easily. Find and purchase your bond instantly by visiting our state page.
Depending on the obligation and financial strength of the Principal, most of these Bonds cost between 1% – 2% per year. This may be expressed in the industry as $10 per $1,000 – $20 per $1,000. Typically, these types of surety bonds renew yearly as long as the license or permit is needed. That means the Bond premium will also be due yearly.
Some Surety Bond companies will give significant discounts for purchasing multiple years in advance. These discounts can be as much as 20% – 30% depending on the company and number of years purchased.
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Unlike Contract Bonds, many License and Permit Bonds can be cancelled. Normally, at least thirty days written notice must be given. In most circumstances, there will be a return of unpaid Bond premium. However, some of these License and Permit Bonds may only be cancelled by the Obligee.
License and Permit Bonds do not replace the need for other Surety Bonds. Many businesses need License Bonds, Permit Bonds and other Construction Bonds. For example, a General Contractor may need a License Bond for a State License, another License Bond to operate in a given City, a Permit Bond to work near a street, plus a Bid Bond to bid on a project and a Performance Bond and Payment Bond to guarantee the project. Axcess Surety can help businesses understand what Surety Bonds are needed.
Most Obligees will accept either cash or an Irrevocable Letter of Credit in lieu of a bond. However, there are a few reasons why a License or Permit Bond may be superior.
First, most businesses and individuals need liquidity. Posting Cash or an Irrevocable Letter of Credit ties up resources that could otherwise be used. Secondly, Cash and Letters of Credit can be taken upon demand with little defense for the Principal. Conversely, License and Permit Bond claims must be investigated by a trained surety bond professional to make sure the Obligee’s claim on the bond is valid. You can read more about surety bonds compared to Irrevocable Letters of Credit here.
Like all Surety Bonds, License Bonds and Permit Bonds require Indemnity. This means that if the Surety Bond company pays a valid claim, they will expect to be reimbursed by the Principal’s and any other indemnitors. You can read more about surety bond indemnity here. However, my experience is that claims against license and permit bonds are typically very infrequent.
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License and Permit Bonds are easy to obtain, and most can be purchased instantly in minutes. Please visit our Surety Bond FAQ page for commonly asked questions. You may also contact us anytime.
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
