Questions About Bonding
What is the fee for a Bid Bond?
Bid bonds are free and are provided to the contractor as a service
by the bonding agency.
What is the fee for a Performance Bond?
Performance bond rates are based on the four "C's".
||Character: does the Principal's
record suggest good character, that he or she will be faithful
to their obligations?
||Capacity: does the Principal
have the skill, experience and knowledge necessary to perform
his or her obligations?
||Capital: does the Principal
have the financial wherewithal to support or finance the completion
of the project?
||Credit: does the Principal
have an acceptable personal and business credit score?
Rates can range from 1-3% of the contract amount depending on
the type of work performed and the surety's underwriting evaluation
of the contractor. The better the four "C's", the better the bonding
rate may be.
Can I set up a bond program?
A bond program is the single job limit, aggregate limit and rate
we set for you each year. Sometimes if the contractor doesn't
show strong financials, we will work with the contractor on a
Will I need to provide financials every
time I need a bond?
Sureties reevaluate your program annually, at the completion of
your fiscal year. We consider the size of bonded jobs done with
us and how they performed. We require a CPA-prepared business
financial statement, bank reference letter, work-on-hand report,
certificate of insurance, and personal financial statement annually.
We may request internally-updated quarterly results, depending
on the frequency of your bond needs.
Can I be bonded if I have poor credit?
We will look at the other underwriting information. Sometimes
we will write the bond and have all contract funds go through
an escrow company. There is an additional fee for this service
but it allows us to write the bond for you. We may look at taking
collateral in the form of an Irrevocable Letter of Credit (ILOC)
supplied from your bank. They set the fee for this. The ILOC form
and the financial institution must be approved by the surety prior
to writing the bond.
Can I be bonded if I lost money last
Surety companies donít like to see contractors lose money, but
in todayís economy it is a frequent occurrence. If you have adequate
equity in the company and good explanation for your financial
performance, we will work with you.
What do bonding companies look for on
my financial statements?
We look at the level of the statement, whether it is a CPA-prepared
Compilation, Review or Audit. Most contractors secure desired
bond credit with a Review-grade financial statement. We look at
how revenues are recognized, requiring a percentage-of-completion
method. We evaluate your working capital: current assets minus
current liabilities. We evaluate your business equity and your
debt-to-equity ratio. The more equity you have the better. We
prefer a debt-to-equity ratio of 3:1 or lower. We look at your
total revenue for the year and your profitability based on that
How large a job can I bond?
This depends on your working capital, equity, debt-to-equity,
last yearís revenues, and largest previous job; either bonded
or unbonded. We like to see at least 10% working capital of the
job size, debt-to-equity of 3:1, and revenues considerably greater
than the job. Typically we can bond as high as 250% of your largest