The Contractor’s Guide to Surety Bonds

If you have recently launched your own construction business, congratulations! You’ve no doubt worked tirelessly to get to this point, and as a local California company we’re excited to have you as part of our business community. As you examine the opportunities ahead of you, you may be preparing to apply for a surety bond.

If this is your first time engaging with a surety company, there are plenty of factors you need to consider when examining your options, so that you can feel confident you’re receiving the service and bonding capacity that fits the needs of your unique business.

What You Can Expect To Pay For A Bid Bond

Before we examine the “hard costs” of a bid bond, you should familiarize yourself with how the surety industry works at large. You probably have a good understanding of how the insurance industry works: they price their product expecting losses.

Surety companies, on the other hand, only issue bonds if they are certain you can uphold your end of the deal and successfully deliver your project.

A bid bond is typically free of cost. Contractors don’t pay for the bond until they win the contract, and move forward with a performance and payment bond.

The premium for a performance and payment bond is based on the total value of the contract, and reflects a percentage of that amount. The size of the contract, your qualifications as a contractor, and the type of work you’re going after will all play a role in determining the percentage you pay.

On average, performance and payment bond premiums range from half a percent to 3%.

There may also be indirect costs associated with the bonding process. This may include the cost to generate financial statements from your CPA, or if you need to hire an internal accountant or controller to manage your business.

The Importance Of Partnering With Local Surety Companies

If you’re just starting your search for a surety bond company, you should know that local matters! While there are many national surety companies promising fast turns and quick approval, you’ll never receive the level of service offered by a local California surety agency that understands what you’re up against in the local market.

As an established and successful surety agency in California since 1984, CSBA has the local insight, industry experience and area relationships to align you with the right surety quickly that can meet your unique needs.

National surety agencies that churn out surety bonds in a transactional manner never take the time to truly understand your business and the type of work you do. This oversight can cost you big in the long term. Many surety agencies are focused solely on commission without taking the time to consider what’s best for the contractor.

By partnering with a local surety agency like CSBA, you’ll receive a dedicated team that takes the time to review your financials, business plan and growth opportunities. The time invested in the onboarding process allows us to leverage your strengths in front of numerous surety companies.

The Surety Bond Process

If you’re new to surety bonds or thinking of partnering with CSBA for the first time, you might be wondering what you can expect out of the bonding process. The deadline to bid on a project can come and go before you know it, and for contractors who are new to the surety industry, you may feel anxious about the process and how long it will take for you to receive approval.

You’ll be relieved to know that the bonding process is quick and efficient! New clients can often be onboarded and processed within a week of partnering with our agency. Established customers can receive bid bonds within 24 hours of application. We strive to make the process stress free and expedient, so that you can focus your energy on putting together a competitive bid.

Our bonding process can be broken down into 7 key steps:

Step 1. We’ll have a thorough discussion about your unique needs.

Your business model and goals are unique, which is why we take time to fully examine your company profile so that we can get a clear picture of what your opportunities are. If the job you’re bidding is potentially risky or outside of your company’s niche, we’ll help you chart a pathway to success so that we can minimize risk and help you understand the steps you need to take to be successful if you are awarded the project.

Step 2. Preliminary underwriting and financial review.

During this step, we’ll gather all of your financial data in an effort to identify your bonding capacity and any financial information that will need to be prepared prior to submitting to underwriting.

Step 3. Internal underwriting.

CSBA offers a unique advantage in that we have our own team of underwriters in house, which helps expedite the process and gives you a competitive edge. By the time your application is submitted to a surety company, our internal team already knows your history and potential, and can accurately position your bonding needs in front of the surety companies that we know will be right for your business and project.

Step 4. Matchmaking.

Once underwriting is complete, we take on the role of matchmakers to find the right surety company for your project. We have deep and longstanding relationships with over 35 surety companies. Most general insurance agents work with 4 or 5 bonding companies, which drastically limits your ability to receive a competitive bond.

It’s all very simple: more relationships = more opportunities for you to receive the right bond program that fits your specified bonding needs.

Step 5. Review the options.

It’s very likely that we may have several surety companies interested in serving your bond needs. Our team will take the time to thoroughly review all of your options.

We consider ourselves a partner in your success, which is why we take the time to go over the pros and cons of each bonding company. Our goal is to prepare you for future success, so we carefully examine all of your options and advise you according to what we have come to know about your goals.

Step 6. Finalize the bond.

Finalizing a bond typically takes 24 hours for established customers, or approximately a week for new clients.

Step 7. Fostering an ongoing partnership with your company.

After we’ve secured your bond, we don’t just wish you luck and disappear! We stay in touch with you throughout the year so that we can share in your success and find ways to continue to help you grow. We’ll also conduct semi annual financial reviews so that we can stay on top of your needs and chart where your business is headed.

We know that your success is our success. Our focus is always on how we can help you take your business to the next level, and unlock new opportunities that put you on a path to long term growth.

Get in touch with a CSBA surety bond expert to learn more about the bonding process and how we can help your construction company build a path to strategic growth.