Contractors, like anyone with a business, would naturally want the best rate for anything necessary. With surety bonds, getting the best rate has less to do with where you go to get a lower price than what you do to prepare for applying to get bonded. To position yourself for the lowest cost you can get, there are several actions you can take yourself and a few that require some expert help.
How Surety Bond Premiums are Determined
Before we discuss the steps you can take to secure a lower premium for the surety bond you need, we need to discuss how they are calculated. The cost of a surety bond is a percentage of the total contract amount and this is what is referred to as the “premium” for the bond. The percentage for the bond premium is usually between 1-3% of the total contract amount. The premium is determined by several factors, including:
- the size of the bond needed
- the scope of the job the bond is for
- the personal credit of the contractor
- the financial strength of the contractor’s business
- the type of work a contractor generally performs
- type of financial statements provided to the underwriter
Each of these factors plays a role in determining your surety bond cost and all of them can be used to better position yourself for securing a lower premium.
Actions to Take for the Best Rate on Surety Bonds
Now that you know the factors used to determine the rate of a surety bond, we can discuss how to better your position in order to lower the cost of a bond. The following sections involve actionable steps you can take yourself, starting right away, while others require outside help.
Mind Your Credit
Your personal credit is an important factor when working to get bonded and lower the cost of a bond. Your credit is one of the pieces of information a surety underwriter will look over to determine your premium cost and the size of the bond they can issue, if they can at all. If your personal credit isn’t in the best situation, taking steps to remedy what is dragging the score down will help lower the cost of your bond..
This is especially important for contractors seeking larger surety bonds or newer companies that may not have enough financial history to secure a bond.
Work with a CPA Experienced in Construction Accounting
Hiring a CPA to prepare your financial statements can help lower the cost of your surety bond by making sure the statements are accurate and presented correctly. It’s important to work with a CPA experienced in construction accounting, as well. The construction industry’s accounting is very unique and a CPA that isn’t familiar with financial strategies common amongst contractors won’t help you lower the premium rate.
We strongly encourage you to read this article here, as it further details why working with a CPA who has a background in construction accounting is a massive help to you get bonded and keeping premium costs down.
Invest in Good Quality Internal Financials
Whether you have a CPA with a background in construction accounting or not, you’ll need to have internal financial statements prepared. The surety company’s underwriter will expect various financial and work in progress updates throughout the year, and whether they request them or not, it’s better to have your books prepared as a surety company bases its opinion primarily on financial information.
To better prepare your internal financials, we strongly recommend reading this article:
How Investing in Quality Internal Financials can Increase Bonding Capacity – CSBA
Work with a Surety Bond Expert
A surety specialist is a great asset to have when wanting to lower the cost of your premium as they have extensive experience navigating bonding and what surety companies look for when determining the premium and your bonding capacity. Some contractors may turn to their long-term insurance agent for advice or help get them bonded, and while your insurance agent may be a great help to you with insurance, they aren’t the best candidate to guide you in bonding.
We encourage you to read here for more information on why a surety expert is a better choice than an insurance agent when seeking a surety bond and how they help in general: Difference Between a Surety Specialist and an Insurance Agent
Get the Lowest Surety Bond Cost with CSBA
We at CSBA can help you strike one to do off the list of positioning yourself for the lowest surety bond cost: working with a surety expert. With over 200 years of combined experience guiding California contractors in growing their bonding capacity and getting the bond they need, we have the key relationships that make all the difference when needing a surety bond.
Our team of surety experts and underwriters can help position you not only in securing the lowest surety bond cost you’re able to get but help put together a roadmap to achieve the goals for your company. Working with CSBA means having a partner who can help you knock each of the actions discussed above from your to-do list and get the premium best for you.