5 Common Errors Contractors Make When Applying for Surety Bonds

Applying for a surety bond isn’t so routine that a contractor is immune to making mistakes. In fact, lots of contractors make mistakes on their application without knowing, and when their bond application is denied, they chalk it up to many reasons that may have nothing to do with the rejection. 

To help California contractor applicants avoid the most commonly made mistakes, we’ve put together a list of them to help ensure your application goes through without hiccups.

1

Failing to Provide Previous General Contractor Business Experience

Newer contractors make this mistake often as they assume being a new business owner means they don’t have any experience to provide. Even if the experience is minimal, you should still show your personal resume to a surety provider to demonstrate your construction experience. 

For newer contractors, there are a few key areas that a surety bond provider will look for that are explored in greater detail here: What Sureties Look For When Bonding Newer Construction Companies – CSBA

For more seasoned contractors, you’ll want to make sure that the experience outlined in your application includes the owner names, description, and dollar sizes associated with past jobs to demonstrate that you’re able to handle the construction job you’re applying to be bonded for.

2

Incomplete or Inaccurate Financials with the Surety Bond Application

Depending on the size of the bond you’re applying for,l sureties might want to see your financial records to ensure your contractor business has the resources to complete a project. The most common mistake contractors make here isn’t in not providing financial documentation, it’s in giving a surety incomplete or inaccurate records. Construction accounting is its own animal and is markedly different than most types of business accounting, so if you’re looking to bond a large project, it’s important to have a construction-oriented CPA prepare your financials before beginning the bonding process. Having a third-party double-check your work signals to the surety provider that not only are your finances prepared properly but that they are accurate.

For a more detailed explanation as to why a CPA is the best way to avoid this common mistake, we strongly encourage you to read here: Are Financial Statements from a CPA Always Required for Bonding?

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3

Having Inadequate Capital or Poor Credit

Surety bond providers want to ensure that a contractor can complete the job they’re wanting a bond for, to do that a contractor needs to be able to demonstrate their ability to survive if times get tough. Having enough capital signals to the surety provider that if the job becomes more costly than originally planned, they have the resources to keep going. For contractors who know they don’t have the capital, credit is a viable option. Sureties will also look into personal credit history to determine your premium cost and your bonding capacity.

The mistake contractors make here is not repairing their credit score if there were previous issues or building up their reserve cash before starting the bond application process. For more information on this topic, we encourage you to read here: Do Sureties Consider Personal Assets When Determining Bonding Capacity?

4

Not Having Good Internal Financials

Another common mistake contractors make is not investing in their internal financials. It’s understandable, construction accounting is difficult and many contractors are more focused on building a job, collecting what they are owed, and paying what they owe, than on ensuring they can provide a financial statement to a third party.  That aside, most sureties base their decision largely on a contractor‘s financial information and use the financial statement to help them gauge your track record of success. 

By not having accurate internal financials, you risk losing the ability to increase your bonding capacity and possibly even being bonded. To have a more detailed explanation as to how and why investing in internal financials is an important mistake not to make, we strongly encourage you to read here: How Investing in Quality Internal Financials can Increase Bonding Capacity – CSBA

5

Going to an Insurance Agent for Bonding

One very common mistake contractors make is who they turn to for a surety bond, which is commonly their longtime insurance agent. It’s important to know that an insurance agent is trained and experienced with insurance, which is staunchly different from a surety bond. While it’s understandable why a contractor would consider them similar enough and an insurance agent can get them a surety bond, it’ll be a much more difficult process with several hiccups along the way, including not getting the best premium or the bond size you could.

Avoid Surety Bond Mistakes by Working with Surety Experts

Mistakes happen, but all of these can be avoided by having an experienced hand that is professionally dedicated to surety bonds for the California general contractor and trade contractors. We at CSBA are well versed in guiding both newer and seasoned contractors to grow their bonding capacity and gaining the surety bonds they need for the jobs they want. With over 225 years of experience, we have the key relationships that can make all the difference in bonding

Avoid the most common mistakes and pitfalls, align with an expert and discover the CSBA difference.

Shaunna Ostrom.
About The Author

Shaunna Ostrom

Senior Underwriter

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