Qualifying for Larger Surety Bonds as a Start-Up

Newer contractors that have recently founded their own business can run into difficulties getting the surety bonds they need to secure construction projects that will fuel their growth. It can be a frustrating experience to want to build your start-up into an established business but not have the resources to be qualified for the surety bonds needed.

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While it may appear that newer contractors have to slowly grow their bonding capacity, there are tactics you can use to help you jump to larger surety bonds without waiting years to do so.

In the following sections, we will discuss the common hurdles that startup contractors encounter in getting bonding, how surety companies determine bonding capacity, and specific actions that newer contractors can take to position themselves to maximize their bonding limits

Hurdles a New Construction Business Faces

There are specific issues new construction businesses run into when applying for surety bonds as a result of the requirements and documentation needed:

  • Some sureties won’t provide a bond to a contractor until they’ve been in business for a certain amount of time. 
  • A line of credit is often a requirement for securing larger surety bonds.
  • Sureties look at a contractor’s experience of completing similar projects to help calculate the size of the bond they will qualify a contractor for, which is difficult to provide as a startup. 

Sureties want contractors to have sufficient capital to pull from in case a project goes beyond the estimate. If a start-up lacks sufficient cash to use in case of these instances, it can be difficult to be approved for a larger surety bond. 

How Sureties Determine Bonding Capacity

To understand how to qualify for larger surety bonds as a start-up construction business, it’s important to understand how sureties determine bonding capacity. Bonding capacity is the amount a surety will issue a bond for, whether it’s a bid bond, performance bond, or payment bond. Before looking at how sureties determine a newer contractor’s bonding capacity, first, you must understand the two types of bonding capacity:

Single Bond Capacity

When setting up a bond program for a contractor, surety companies establish what they refer to as a single project limit. Generally, they want to stick with bonding projects that are within 1.5 to 2 times the contractor’s largest completed project, but there can be cases when they will consider larger jobs. With newer construction companies, surety companies have to use a combination of the contractor’s experience under the current company and past projects they have completed for their prior employer.

Aggregate Bond Capacity

In addition to establishing a per-project bonding capacity, surety companies set a total bonding capacity for the contractor’s entire backlog of work whether the work is bonded or unbonded. The reason for this is one of the most common factors for contractor failure is taking on too much work relative to the company’s financial and operational resources. To learn more about how aggregate bonding capacity is calculated, we strongly encourage you to read this article:  Aggregate Bonding Capacity: What is it and How is it Calculated? – CSBA

A Guide to Surety Bonds for Newer in Business Contractors

Below you’ll find answers to commonly asked questions newer contractors have about establishing a bond program or growing their bond limits to achieve their goals.

There are three main factors that surety companies evaluate to determine a contractors bonding capacity, often referred to as the “3 C’s” of bonding:

The Contractor's Character

In the surety world, character is used to refer to how the owners and key employees of the company think and operate. When a surety bond company is evaluating character, they are looking to see if the contractor follows through on commitments and whether they are transparent in their communication. No one is perfect, but having strong character has proven to be the most important factor in surety underwriting. For this reason, you will want to work with a surety agent that takes the time to get to know you well, because that is the only way they can represent you properly to surety companies. In addition, you will want to investigate the surety agent’s reputation, because if they don’t have a strong reputation, that can negatively impact the way the surety looks at your construction company. 


When evaluating a construction company’s capacity, a surety is looking to determine if the construction company’s owner(s) and key personnel can perform the work. Does the contractor have the necessary estimators, project managers, superintendents, and office personnel, and are they seasoned people or new to construction or the organization? When looking at their experience, the surety company will examine their track record of being able to tackle specific types and sizes of projects successfully as well as running the organization’s profitability as a whole. The surety will also want to see if the contractor either owns the equipment necessary or if they can rent it.


Capital: Here the surety is looking at what financial resources the company and owners have. There is a great emphasis on strong personal credit when it comes to start-ups because surety companies have to rely on the individual creditworthiness of the owners as there isn’t as much of a track record as there is with established companies. The surety will also look at things like how much cash is there personally and in the company. Do the owners have equity in real estate and are there bank lines of credit available either for the company or personally with say a home equity line of credit?

How to Qualify for Larger Bonds as a Start-Up

The advice following will help a start-up construction business position themselves to secure surety bonds for bigger construction projects and continue to grow bonding capacity over time:


Resume of Prior Experience:

This is one of the most important pieces of information you can provide to your surety agent as a newer contractor. Not only should you list your past employers and the roles you had, but you should also take the time to list some of the key projects you estimated or managed while at those companies. Organize them by year, list the project owner or general contractor’s name, description of the work, profit if you have that information, and a reference the surety company can contact. This is one of the biggest tools your surety agent can use to demonstrate your experience and character.


Key personnel:

The same applies to any of your key personnel. This is particularly helpful when multiple people that worked together previously start at the new construction company because it shows the depth of the organization extends back to the prior construction companies where everybody worked together.


Initial capital:

The amount of initial capital you will need to start the company will largely depend on your operating needs and how much bonding capacity you’ll require. You should talk with your surety agent to figure this out together.



For construction companies that require equipment, it is generally best to rent as much as possible at the beginning to keep debt low and to maintain your cash, which will be critical for bonding purposes. There are times when equipment is necessary, and we typically encourage minimizing the down payment in the early years of your business.


Financial statements:

If the company is brand new, surety companies will generally just get an internal balance sheet showing the amount of capital that was put into the company and a bank statement to verify the cash. If the company has been in business for more than a year, your surety agent will get your internal financial information including a balance sheet, profit & loss, and accounts receivable and accounts payable aging schedules for each year you have been in business, and then one for the current year. Some startup companies have a small loss or very minimal profit in the first year as they just get started building revenue. Don’t worry if that’s the case, as long as the subsequent years show progress toward profitability, the story will be easy to communicate for your surety bond agent.


Setting Up Your Accounting:

Just as equipment can be the most important tool for contractors to get work done in the field, accounting is the most important tool for monitoring the profitability of that work and communicating it to the surety to qualify for bonding capacity. Many contractors view accounting as a burden and an expense. However, it can be one of the most important areas of your business, because when properly set up, it can show how strong your company performs, which can increase your bonding capacity and open doors to future project opportunities.


Keep Work In Progress Schedules:

Work in progress schedules are somewhat unique to contractors, and they simply list the contractors’ jobs showing the contract amount, estimated cost and profit, and the percentage complete for each job. They give the surety company a snapshot of the contractor’s remaining backlog of work, how well the contractor is performing on each project, and whether there are any issues.


Setting Up Your Banking:

Surety companies want contractors to have a line of credit as a safety net in case they run into an unexpected problem on a project. Having quick access to cash can make a difference to help you get through a challenging project and continue as a business. Many newer contractors think getting bank financing is out of reach because most banks will tell you that you have to be in business for three years to qualify for any loans. However, there are exceptions and ways to work around this. Some banks don’t have these rigid rules, and it is a matter of finding the right banking partner. Other times, it makes more sense to use the equity you may have in personal properties to get home equity lines of credit. Surety companies will often treat this the same as a business line of credit for the first few years.

SBA Bond Program

The SBA bonding program helps small contractors who are not likely to be approved by a surety bond company for a bond, which would prevent them from growing and securing government contracts at the federal, state, and local levels. The program provides a way for contractors who aren’t likely to secure a surety bond to obtain a bonding line for projects up to a certain amount. The SBA would guarantee to the surety company for up to 90% of the liability on the contract, making the contractor a lesser risk to the bond provider.

Read through our SBA Surety Bond Program Guide to see if the SBA bonding program is the right option for you.

We at CSBA are one of the few surety experts that work with newer contractors and take pride in helping them grow their businesses while educating them on the opportunities that increasing bonding capacity offers.

To better help California contractors achieve their business goals, we’ve assembled our Guide to Surety Bonds for Newer in Business Contractors, and we are here to help you step-by-step by providing the resources. We have construction accounting experts that can help you set up your job costing, implement accounting software, and train your staff. They are available for the initial setup and on an ongoing basis if needed. We also work closely with several construction CPAs, and when your company is ready to take that step, we can guide you to these professional advisors.

Download the Guide to Surety Bonds for Newer in Business Contractors

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