Bonding Companies Contractor Criteria
Bonding companies look at far more than just owners' personal
credit when it comes to contract surety over $100,000. A surety
wants to have confidence in their bonded contractors prior to
approval. There are numerous different actions a contractor can
take to instill confidence in a bonding company. A contractor
must be organized and practice restraint when necessary to gain
the trust of an underwriter.
For most, the best way to run a company in an organized fashion
is to hire professionals they can count on to assist in decision
making. A bond producer well versed in contract bonding should
be a top priority. If your agent is not knowledgeable enough or
does not have the markets to fit your company's needs, then
there is little other professionals can do to help with your
bonding needs. An accountant that understands construction is a
must. The business financial statements are the highest weighted
item for underwriting a contractor. You can think of them as the
underwriter's window into your company. A contractor must walk
away if their accountant does not know how to complete financial
statements on a percentage of completion basis. A good
relationship with a banker is a rather obvious need for any
business that relies heavily on loans to operate. There are
numerous other professionals that one could utilize such as good
a good controller and legal counsel, but we will stop our list
here so it still applies to most contractors.
Surety underwriters will want to periodically meet with their
medium to larger sized contractors. The underwriter will want to
see that the contractor knows their cash flow and their
receivables that are over 90 days. The underwriter will also
want to see that the contractor can answer all other questions
regarding their company. In other words, the underwriter will
want to leave feeling confident that the contractor knows their
industry and the specifics on their company.
Earlier, I mentioned that a contractor must practice restraint
when necessary. By restraint, I mean that they can not be
blinded by profits and take risks above and beyond their
ordinary work. A surety will not be comfortable approving a bond
twice the size of any previously bonded work for a new company.
A red flag is raised for any contractor that wants to do work
outside of their niche and or territory. If an underwriter is
not comfortable with the contract for any reason, they will
decline the contractor.
A contractor must keep in mind that they are essentially
obtaining surety credit. Underwriters must use the financial
documentation provided and personal relationships to decide the
risk on a particular account. A contractor that is well
organized with a team of professionals to assisting them will
create a great deal of confidence in a surety's underwriters.