Bonds For Contractors – How Can I Maximize My Bonding Capacity?

Is Your Bonding Holding You Back?

Q:

We are having to bid more public works jobs than we did in the past. These type of jobs require us to provide a bond along with our bid. We used to do mostly private jobs so we didn’t bond much, and our insurance agent was able to help us get them when we needed them. He is now struggling to get us the bonds we need as our backlog of bonded work increases, and they tell him our bonding capacity is at the limit. Any ideas how we can get more bonds?

Kevin Duncan
Master Builders

A:

Your bonding capacity is a reflection of your financial strength, financial reporting, management team strength and how it is presented to a bonding company. The first thing you need to do is to find a bonding agent who specializes in providing bonds to contractors. Some insurance agents offer bonds as an add-on service to their insurance business but are not experts in bonding. Seek out a bonding agent vs. an insurance agent. You can find them through your local builders association, or ask other contractors for a referral. A qualified bonding agent will help you organize your monthly financials and present them to bonding companies in the best manner possible. Often, presentation and accuracy are as important as the financial numbers. Also, ask them if there are different ways to maximize your bonding capacity. Often, they can suggest creative ways to increase your capacity like personal guarantees, set-aside funds or joint ventures. The bottom-line is that you will get bonds based on how much liquid assets you maintain in your company. The more you have, the larger your bonding capacity will grow.

Construction Business Owner, July 2010