Do Sureties Consider Personal Assets When Determining Bonding Capacity?

As a contractor, you know that bonding capacity and the ability to get surety bonds are essential to bidding on jobs. What isn’t always clear are the factors that you can leverage to increase bonding capacity, which is why many contractors that have personal assets wonder if sureties include those in when determining bonding capacity. 

To fully understand whether sureties consider personal assets when determining bonding capacity, there are a few other points of information that can help to explain the answer. 

What Types of Personal Assets Does a Surety Consider?

A surety company considers cash, equity in real estate, and stocks and bonds in non-retirement accounts as your personal net worth. The reason why a surety wouldn’t consider retirement accounts as part of your personal net worth is due to the fact that they are protected by law from creditors and sureties. The good news here is that surety companies do consider personal net worth as part of bonding capacity and getting bonded, but only specific types of assets. 

How Do Personal Assets Factor into Bonding?

To start, many sureties consider personal assets as a secondary factor to the capital in a construction company, but how much weight it carries depends on the surety. Some sureties give more weight to personal net worth than others and some consider it equally with the company capital. A contractor’s personal net worth is mainly used as an indication of your success and profitable track record and partly to measure your ability to repay the surety if a claim is filed against the bond. 

Another way your personal assets support larger bonding capacity is that it helps your company by having the means to put money back into the company at any time in the event it is needed to fund a larger project or backlog. . There are several other reasons why it’s a good idea to have a larger personal net worth beyond being able to put money back into your company whenever needed. We encourage you to explore here to gain a better understanding of how sureties determine bonding capacity: 

How Sureties Determine Bonding Capacity – CSBA

How to Leverage Your Personal Assets to Increase Your Bonding Capacity

If you’re concerned about your increasing your bonding capacity, there are a few things you can do to use your personal assets to improve the situation:

  • As mentioned previously, sureties rely mostly on cash, real estate equity, and stocks/bonds in non-retirement accounts with personal assets , so it is best to hold onto your cash or invest in real estate and stock/bonds instead of making large recreational purchases that do not count towards your net worth, for example, RVs and boats. As they don’t count towards your assets, they pull money away from the bonding capacity needed.
  • A home equity or company line of credit lets the surety know that the contractor has access to cash if needed, which betters the likelihood of you getting the surety bond and/or capacity you need. So, if you don’t already have a home equity line of credit, you may want to consider getting one. The key is not to use it, because the surety wants the cash to be available. 
  • Don’t have a lot of debt, which tells the surety that you have other financial obligations and may be stretched too thin. 
  • Work with a surety specialist, they can help you partner with the right surety company. As mentioned previously, some surety companies put more weight into personal assets than other sureties. A professional surety agent will know which surety companies will be more favorable based on your particular situation and financial structure to maximize her bonding capacity.

What Can a Surety Specialist Do?

A surety specialist can act as a guide in getting bonded and help in the ways previously mentioned, like understanding the impact a financial decision may make on bonding, helping a contractor match with the right surety provider to get the most credit for their personal net worth, and guide them in the right direction to further growing their bonding capacity.. The surety specialists’ entire expertise and professional life is helping contractors navigate the world of surety bonds, so they are the best to seek advice from.

The short answer to whether or not sureties consider personal net worth when determining a bonding capacity is “Yes”. Whether they carry the same weight as company capital is a different story. That’s where a qualified surety expert comes into play. As a contractor, you don’t have to be an expert in surety bonds, that’s what a surety agent is for. While it’s important to understand the basics of bonding, it’s also important to partner with a surety agency that understands both sides of the business and can guide you in the right direction. 

At CSBA, our job isn’t to dictate your business decisions, but to advise on how to navigate the areas you’re unfamiliar with and grow your success as much as possible by getting the bonding capacity you need.

Dan Huckabay
About The Author

Dan Huckabay


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