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Only certain types of contractors are required to be licensed at the state level by the Minnesota Department of Labor and Industry. Specifically, residential remodelers and building contractors who do work in more than one special skill (excavation, masonry, carpentry, interior finishing, exterior finishing, drywall and plaster, roofing, and/or general installation) must obtain a license at the state level. Additionally, residential roofers must have a state license even if they don’t work in any other skill areas.
Not all of these licenses carry a bonding requirement. When a contractor license bond is required, the purpose is to:
Certain municipal governments require local licensing of specialty contractors, which may also require the purchase of a license bond.
All state-licensed residential roofers must purchase a Minnesota contractor license bond. So must electrical, masonry, and mechanical contractors licensed at the state level. It’s important to check with local authorities where you will be working to see what other Michigan contractor license bond requirements might apply.
The required amount of the bond (the bond’s “penal sum”) varies depending on the type of bond.
There are three parties to the surety bond agreement for a Minnesota contractor license bond:
A violation by the principal of the terms of the surety bond agreement that results in a financial loss to the obligee or a consumer can result in a claim for damages being filed against the principal’s Minnesota contractor license bond.
The terms of the surety bond agreement make the principal legally responsible for paying all valid claims. However, in practice, the bond functions like a line of credit, and the surety will pay the claimant directly, up to the bond’s full penal sum. The principal must then repay the surety for that debt.
The premium for a Minnesota contractor license bond is a small percentage of the bond’s penal sum. That percentage, the bond’s premium rate, is assigned by the surety on a case-by-case basis, depending largely on the principal’s personal credit score. Other factors related to the likelihood of claims and the risk of extending credit to a given principal also enter into the picture, including the contractor’s business financial strength and industry experience.
A well-qualified principal will pay the standard market rate, which is between 1% and 3%. A less-qualified principal should still be able to obtain a Minnesota contractor license bond but will pay a higher premium rate.
Request a convenient online quote today, or call to speak with one of our experienced professionals about the Minnesota contractor license bond you need.
