According to California regulations, which of the following can be used as an alternative to the contractor license bond?
Correct Answer
B) Cash deposit of $25,000 with the CSLB
California Business and Professions Code Section 7071.5 allows contractors to deposit $25,000 in cash with the CSLB in lieu of filing a surety bond. The cash deposit must be maintained with the CSLB and serves the same consumer protection function as the license bond, but provides direct access to funds for claims.
Why This Is the Correct Answer
Under B&P Code Section 7071.5, a contractor may deposit $25,000 in cash with the CSLB in lieu of a surety bond. This cash deposit is held by the CSLB and serves the identical consumer-protection function as a license bond—it provides a fund from which valid claims can be paid.
Why the Other Options Are Wrong
Option A: Certificate of deposit in contractor's name only
A certificate of deposit held in the contractor's name only does not qualify because the CSLB cannot directly access or control those funds. To be acceptable, a CD must be assigned to the CSLB, giving the board control over the asset.
Option C: Irrevocable letter of credit from any bank
An irrevocable letter of credit is not listed as an approved alternative in B&P Code Section 7071.5. The statute specifically limits alternatives to cash deposits, savings accounts, and CDs—all assigned to the CSLB.
Option D: Personal guarantee from the qualifying individual
A personal guarantee from the qualifying individual provides no third-party financial security. Bonds and deposits must be backed by actual funds or a licensed surety; personal promises do not meet the statutory requirement.
Memory Technique
Think of the CSLB as a vault: any alternative to the bond must be placed inside that vault (i.e., deposited with or assigned to the CSLB). If the CSLB can't reach the money directly, it doesn't count.
More law-business Questions
Under B&P Code Section 7071.9, a contractor may deposit cash or securities instead of obtaining a surety bond. If a contractor chooses this option, where must the deposit be maintained and what happens to interest earned?
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