Monthly Archives: August 2019

Getting Bonds for Your Business

Construction is booming and with this increase, there has also been a increase in bonds as well. Keeping up with the growth means that it is vital to secured bonds quickly. With a little planning and having the right team in place to handle your bonding needs can make a huge difference.  What exactly is needed for a successful bonding team?  An agent and an accountant that fully understand the surety bonding marketplace; and your knowledge of the contract language on simple contracts (and possibly an attorney for the more complex contracts).  With the right people in place Bonds become a valuable piece of your business that help you secure the future growth you desire. 

What is a Surety Bond?

Just a quick brush up on what a surety bond is and why  Surety Bonds are more of a financial or credit tool that speaks to the financial strength of your company, as well as the experience in the industry and overall ability to complete a particular construction project. A bond is a third-party agreement, the bonding company is bound to the provisions in the contract making them, in essence, your silent partner. In order for them to become your partner, they will require you to sign an indemnity agreement, something an insurance policy doesn’t require.  This is the way a Surety company protects themselves should there be a loss.  The amount of information required for a surety bond depends greatly on the size of the job or program desired, the credit profile of the company and its owners. 

Why is the right agent important? 

Most Agents are very familiar with standard programs that are quick and easy. These programs have set rates and restrictions on how large the job can be.   However, having an agent that is well versed in the unique niche that is Surety Bonds can help you find a program more tailored to your needs.  As a company grows moving away from a quick program can provide larger single and aggregate limits, as well as rates that reflect the strength of your company.    For those contractors that have had a difficult time obtaining bonding in the past.  The right agent will be invaluable knowing where to get you started and know when to move you to another company as your company becomes more appealing to surety’s.  The right Agent understands what each surety’s appetite is, this is helpful as it saves time by approaching the right company first.  Additionally, they know when a business has developed and maybe even outgrown a surety and where to go next. To keep a good relationship with your bonding company so that bonds are easily accessible when needed there are things that a bonding agent will do.  They will meet with you prior to year-end and then again at the beginning of the new year. These meetings are key to keep your bonding line healthy and able to be utilized.  Maybe even to increase it if that is what you want to do. 

Keeping your best interest in mind, a bonding agent needs to be as responsive as you are on your job site.  Keep in mind the right agent in only as good as the information provided to them by you and your accountant.  If you are willing to provide information and listen to them, they can help you secure a bond program for your company for now and the future.

What role does an Accountant play in securing surety bonds?

Understanding how to structure a statement so that the Surety company sees your company’s assets in the best light is crucial.  Oftentimes this is the most painful part of the bonding process as surety companies need to see profits.  Profits to many accountants, and let’s face it all of us, mean more taxes.   A bond savy accountant understands and can work with the contractor to position you in the best light for the size of bonded jobs that you want to pursue.  Striking a balance between showing the profit a Surety Company needs to see and the amount of taxes you have to pay. 

The only other member of this team that we haven’t discussed is you the contractor.  Your knowledge and expertise of the projects you are looking at.  No one likes surprises in the middle of a job, including surety companies.

With the right team in place pursuing bonded work can become less intimidating.  It takes a little planning.  That is why, if you talk to your team working together now will help you be prepared for whatever bids may be coming up.  Get your team in place and grow your business.

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