By LISA TRYMBISKI, Manager, Bryant Surety Bonds
If you are a sanitation and heating engineer who wants to operate a business through which you will install, maintain, and repair heating, ventilation, and air conditioning (HVAC) systems, you will likely be required to be licensed or certified to legally operate your business.
While the laws vary from state to state, most require HVAC contractors to purchase license bonds before they can obtain their certifications or licenses. According to regulations promulgated under Sect. 608 of the Clean Air Act, the Environmental Protection Agency requires that all HVAC technicians who work with refrigerants while installing, maintaining, or preparing stationary HVAC systems must pass an EPA exam and obtain certification. Most states also require HVAC contractors to obtain state licenses to legally operate. Here is some information about the bonding requirement for HVAC professionals that you should know.
What Is an HVAC Bond?
An HVAC bond is something you must purchase before a license will be issued to you. It is not a form of insurance that protects you, but instead protects your customers by serving as a guarantee that you will comply with relevant laws and regulations and be ethical in your business operations. Surety bonds are a form of credit provided to you by the bonding agency. A surety bond involves the following three parties:
- Principal - The HVAC contractor who must purchase an HVAC bond;
- Obligee - The government agency that requires the principal to purchase the bond;
- Surety - The bonding company that guarantees the principal's legal compliance by issuing the bond.
If you are approved for a bond and later fail to fulfill your contractual obligations, or violate the laws governing the HVAC industry, a claim can be filed against your HVAC bond by the government or by an aggrieved customer. The surety company will pay a valid bond claim for you. However, you must pay the surety company back in full for all money it pays out on claims on your behalf.
At the time your bond is issued, you will be asked to sign an indemnity agreement with the surety company. An indemnity agreement is a legal contract through which you agree to hold the surety harmless for any claims that might be filed and to be liable for them. If you fail to reimburse your surety for a filed bond claim, the bonding company can pursue legal redress against you through the courts to recover what is lost, as well as all associated legal expenses.
Why Are HVAC Bonds Required?
You must obtain an HVAC license or certification before you can legally operate your business. The licensing requirements vary from state to state for HVAC technicians who are pursuing certification. Some states have apprenticeship programs before a technician can become certified through which they must complete a two- to three-year apprenticeship while working under the supervision of a licensed HVAC contractor.
While the licensing requirements vary based on state laws, most states require HVAC contractors to purchase surety bonds as a license condition. If you live in a state that requires HVAC contractors to be licensed, you likely will also be required to purchase an HVAC bond before the state will issue a license to you. Even if you live in a state that does not require licensing for HVAC technicians, you still should check with your city or county to learn whether you might have local requirements for bonding and licensing.
How to Get an HVAC Bond
HVAC bonds are offered by surety bond agencies. You can get a bond by submitting an application to a surety company. Since surety bonds are a type of credit, the surety company will consider multiple factors to assess the risk involved with approving you for a bond. Some of the underwriting factors considered by a surety company include the following:
- Personal and business credit;
- Available working capital;
- Business and personal assets and liabilities;
- Moral character and reputation.
These factors influence the surety company's decision about whether to approve your bond application and the premium you will have to pay to purchase it. You will not have to pay the full bond amount to purchase a surety bond. For example, if you are required to purchase a $15,000 HVAC bond, you will not have to pay $15,000 upfront. Instead, the bond premium quote will be a percentage of the bond's face value.
If you have excellent credit, experience, and good character, you might expect to receive a bond premium quote of as low as 1% of the total bond amount. For a $15,000 bond, this means that you might expect to pay around $150. By contrast, if your credit is poor and/or you have other issues on your record, your bond application could be denied, or you might be provided a premium quote for a much higher percentage.
Are HVAC Bonds Permanent?
Of course, HVAC bonds do not last forever. Instead, you must renew your bond at the time set by your state. In many states, bonds must be renewed each year before your license renewal date. Make sure to pay attention to the expiration date of your HVAC bond. If you allow it to expire, your HVAC license could be suspended until you come into compliance. Continuing to operate your business without a valid license could result in substantial penalties, the revocation of your license, and the closure of your HVAC business.
If you are initially forced to pay a high bond premium to get your HVAC bond because of poor credit, make sure to take steps to improve your credit score and maintain a good relationship with your bonding company. Avoiding bond claims and improving your credit score can help you to secure a better rate in the future when you apply for a new bond.
Operating your business lawfully and ethically can also help with more than simply obtaining a lower bond premium cost. Good business practices can also help to build your business's reputation in the community, increase your customer base, and help you to ensure that it is more profitable.
For more, contact the author at Bryant Surety Bonds Inc.