Increased Bonding Capacity
Increasing Bonding Capacity
As your business grows, so inevitably will your bonding needs. Whether you are looking to pursue larger projects or your backlog is increasing, having the necessary bonding capacity is often the key that unlocks your ability to take advantage of those opportunities.
Increased bonding capacity is often a competitive advantage for contractors. It allows you to separate yourself from the pack and bid on projects that others can’t. And less competition usually comes with better profit margins.
Tips for Increasing Bonding Capacity
Beyond partnering with the right surety agency, there are several things you can do to make increasing your bonding capacity more likely:
- Keep your earnings in the company. As a business owner, it’s always tempting to take money out of the company. After all, we all want to feel the reward of our hard work. It’s important to remember though, especially when you are growing, that the company will require more capital and so will a surety to support larger bonding capacity.
- Work with a CPA experienced in construction business. Financial information is to sureties what equipment is to contractors. It is the tool that allows a surety to gauge a contractor’s performance/financial health and provide them bonds. Sureties will want you to disclose more financial information and history when increasing bonding capacity, and a high quality construction CPA will know what sureties look for in financial statements.
- The right type of financial statements, there are three main kinds: Audit, Review, and Compilation. The details and costs of each vary a great deal. Audits are the most detailed and are usually only required for very large construction projects. Review statements are the best of both worlds as they are detailed but not nearly as expensive as Audits. Contractors requiring bonds over $2 million generally need a Review although there are certainly exceptions. The last type of CPA financial is a Compilation statement which is the least detailed and least expensive, but also the least reliable from a surety’s standpoint. Generally, a compiled financial statement is good for contractors needing bonds less than $2 million or that only need bonds sporadically, but again, there can be exceptions.
- Get an unsecured bank line of credit for the company. Generally, the ideal amount is equal to 5% of your annual revenue. If you are newer and in your business, you may need to wait two or three years before the bank will approve you. In the meantime, a home equity line of credit can be a good temporary substitute.
The best way to obtain the points above, of course, is by working with the right surety bond agency. They can guide you through all the ins and outs, make sure your financial statements and team are up to standard, and walk you through the entire process.
CSBA is the Right Surety Agency
Anyone in business knows that experience, reputation, and relationships make all the difference. At CSBA, we don’t just dabble in bonds like many insurance agents. It’s all we do day in and day out. We eat, sleep, and breath construction and surety.
The trust with our surety companies has been built up over decades. We’ve done so by being selective in the contractors we work with, taking the time to get to know them intimately, providing guidance to help our customers avoid the many pitfalls inherent in the construction industry, and being proactive with both our contractors and sureties to ensure a smooth and effective relationship.
The front-end work we do helps our contractors be more successful, which has led to better contractors customers for our sureties with fewer claims against their bonds. It’s a true win-win, and as a result, our sureties put more trust and confidence in us than other agents, which ultimately allows us to get more done for our contractors.
In addition to our strong relationships, our position as one of the largest surety agencies in California enables us to represent more surety companies than other agents, some of which are semi-exclusive to us. This allows us to provide more options to our contractors to ensure we get a bonding program in place that meets their unique needs.