Growing your construction company can be difficult. If it performs projects for the public, one thing that needs to grow with the company is the amount of available surety bond credit. A lack of surety credit is a constraint to the growth your business could see. Performance and payment bonds are essential for a public works contractor. All public and private projects require these bonds, and a strong bonding relationship is essential for success and profit. The success of the company may depend on your bonding company. The following are six ways to increase your surety bond credit.
Sureties often assess personal credit scores, especially for contracts under $750,000, so a higher credit score can lead to increased bond limits. Contractors should work with a construction-focused CPA to ensure their financial statements accurately reflect the company’s financial health, as these are crucial in the surety’s evaluation process.
The history of your company can build confidence with sureties. This track record shows the ability to manage projects effectively and fulfill contractual obligations, a positive indicator for future performance.
Surety bond producers typically expect a business to have capital equal to at least 10% of secured projects or work backlog. This can be achieved by maximizing cash flow, managing assets efficiently, and possibly increasing equity in the business through personal cash injections or shareholder loans.
A good partnership can lead to better understanding and trust, which might result in more favorable bond terms. Contractors should also consider diversifying their project pipeline to spread risk and demonstrate their capability to handle a variety of work.
Using equity in property or equipment to convert short-term bank debt into a long-term loan can improve the company’s financial standing and increase surety bond capacity.
It’s important for contractors to plan for the future by having a written succession and job continuity plan in place. This shows sureties that the business is well-managed and prepared for various scenarios.
Increasing your surety bond credit requires a multifaceted approach that includes financial stability, successful project management, strategic financial planning, and building solid relationships with surety producers. By focusing on these areas, contractors can enhance their ability to secure higher bond limits, which can be a significant advantage in the competitive construction industry. For more insights, refer to the resources provided on our website or by contacting one of our surety experts.
Our surety professionals at AssuredPartners provide exceptional support to clients nationwide for their various surety needs. Contact our team to learn more!
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