Short answer
A license bond, also called a license and permit bond, is required by a government agency before it issues a license and guarantees you will follow the laws governing that activity. A contract bond is required on a specific project, usually construction, and guarantees you will complete the work and pay your subcontractors and suppliers. One backs ongoing compliance, the other backs a single job.
License and permit bonds are tied to a license. The state or city requires them so that if a licensed business breaks the rules and harms the public, there is a source of recovery. The amount is set by statute and the bond stays in place as long as you hold the license.
Contract bonds, including bid, performance, and payment bonds, are tied to a construction project. They guarantee the contractor will honor the bid, finish the work, and pay everyone down the chain. Underwriting for contract bonds looks closely at the contractor's finances and track record because the obligation is larger and project-specific.
Related
Browse more questions and answers.