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A contractor license bond is a type of license and permit bond, which means that purchasing one is a mandatory step in the licensing process at both the state and local levels. An Arkansas contractor license bond protects the licensing body so that it can�t be held responsible for any financial loss incurred by the public as the result of a licensed contractor�s violation of applicable state laws or local building regulations. An Arkansas contractor license bond also ensures that funds will be available for compensating the injured party in such cases.
Arkansas issues several different types of contractor licenses depending on the specific kind of work:
Certain municipalities also have contractor licensing requirements in addition to the statewide licenses issued by the Arkansas Contractors Licensing Board. In most cases, purchasing an Arkansas Contractor License bond is a prerequisite for obtaining an Arkansas contractor license.
The surety bond industry has its own jargon, including the terms used to refer to the three parties bound together in a surety bond agreement, which is a legally binding contract:
Any member of the public who is harmed financially by the principal�s failure to abide by the regulations governing his particular type of contracting can file a claim against the principal�s Arkansas contractor bond. If the surety finds the claim to be valid and is unable to negotiate an amicable settlement, then the claim will be paid.
There�s a bit of a twist here. While the principal is legally obligated to pay all valid claims, the surety typically makes the payment to the claimant. This creates a debt owed by the principal to the surety�a debt that the principal must repay.
There are a couple of good reasons for this arrangement. First, the claim is paid in a timely fashion. Second, the principal is given some breathing room to repay the debt to the surety, which usually can be done in installments over a certain period of time.
The premium for an Arkansas contractor bond is a small percentage of the required bond amount, which will differ depending on the type of contractor license. Generally, it will be no more than $10,000. What that percentage, the premium rate, will be is determined by the surety�s underwriters, who will base their decision largely on the principal�s personal credit score. Their primary concern is the degree of risk the surety will be taking on in advancing money to the principal to pay claims. The more creditworthy the principal is, the lower the premium rate.
Request a convenient online quote today, or discuss your Arkansas contractor license bond needs with one of our experienced surety bond specialists.
