Surety bonds are part of the requirements that contractors are expected to meet when it comes to getting projects, especially public projects. A surety bond serves as a financial guarantee by a third party (the surety) that a contractor (the principal) will fulfill the terms of a contract by completing a project as required.
If the principal fails to complete the project as required, the surety must ensure the agreed upon project is executed as required. Bonding companies are therefore careful of who they stand as surety for and to what extent. Here are tips to help you improve your bonding capacity.

Increase your capital

Capital is one of the essential considerations when it comes to assessing your bonding capacity. A surety company will be interested in knowing whether you have the financial ability to complete the project as desired. Several tests will usually be carried out and ratios calculated to determine this. It is therefore advisable to ensure you have sufficient capital, especially working capital. The difference between current assets and current liabilities is the working capital. It shows how capable your organization is when it comes to meeting current operation obligations.



Improve and display your capacity

Surety companies are also interested in knowing if you have the capacity, skills, and tools to complete a project you are planning to take up. They will also be interested in knowing if you have the right personnel and experience needed for the project. It is in this regard that most contractors run into issues with these companies. You should be ready with proofs that could help clear the misgivings a surety may be having about your capacity.



Have a good character and reputation

A character is another key factor when it comes to bonding capacity. It will interest you to know that surety companies will desire to have an idea of how honest you are in your business dealings. The relationship you have with your suppliers, subcontractors, and financial institutions also matters. The quality of work done in the past also comes into consideration. So you will do well not to be found wanting in these regards.



Use a bonding agent

While it is possible to get construction bonds to help from an insurance agent, this is often offered as add-ons to the insurance service provided. This could greatly restrict your bonding capacity at a point in time. It is preferable to deal with a bonding agent, who is in a better position to give you an idea of how to organize your financials properly to avoid issues with bonding companies.

Written by: John Brown
John has more than 25 years of experience in the insurance industry. He grew from a star insurance producer to owning one of the largest agencies in the country; he's a reference regarding contractor's insurance, commercial insurance, and builders' risk insurance.