#187: LOOK B 4 U LEAP: Top 10 Surety Bonding Tips for Beginners

Tip #1: The Contractors Questionnaire should be filled out completely, signed and dated.

Explanation: It is better to answer every question and provide additional explanations than to leave answers blank.  They make the reader suspicion that critical info is being withheld.  It gets the relationship off on the wrong foot.

Tip #2: Owners spouses’ info must be included in all areas including the Contractors Questionnaire and personal financial statements. 

Explanation: Bonding companies expect to have personal financial info and the indemnity of all owners and spouses.  The underwriters will ultimately determine if the owners are married.  If the spouse info has been omitted it is an immediate red flag.

Tip #3: If there is a default or bankruptcy in the company or personal history, provide full disclosure with an explanation and offer documentation (even if it occurred more than 7 years ago.)

Explanation: There are often legitimate reasons for such events.  It is important to explain why it happened and the events/actions that followed.  There are bonding companies that will be understanding and welcome the business. 

Such historical details cannot be concealed.  They will be seen in the credit reports and background checks.

Tip #4: Tax disputes – if they result in a Tax Lien, you may lose more money by fighting it than by paying it off.

Explanation: Tax Liens are viewed as a possible indication of poor management, insufficient cash flow and/or bad accounting practices.  This can hold back your bonding and keep you from acquiring new projects. Weigh the advantages.  It may be better to pay the tax bill and keep your credit report clear.

NOTE: Unpaid taxes can result in a tax lien even if you have been told to not make payments while the matter is under appeal.

Explanation: During an appeal, the government may file a tax lien to perfect it’s rights.  They do this with no regard for the effects a lien may have on your credit rating, your banking or your bonding relationship.

Talk to your attorney about paying the disputed amount during the appeal process.

Tip #5: Don’t borrow money from the company.

Explanation: This creates an asset on the company balance sheet called “Stockholder’s Loan Receivable.” Bond underwriters typically disallow this asset by deducting it from Working Capital and Net Worth (bad for your bonding). Avoid such transactions!

Extra Tip: If you have already borrowed from your company, start paying it back now.

Tip #6: Litigation – open suits must be disclosed on the Contractor Questionnaire.

Explanation: Such facts will become known to the surety from a variety of sources. For example, your CPA may be required to disclose open litigation in the financial statement notes. 

If you are a defendant, the surety will want to know the cause of the action and the financial implications. It can help if your attorney writes a letter of explanation and predicts the likely outcome.

It is better to volunteer this info on the application, and offer the explanation YOU feel is appropriate.

Tip #7: Young companies can supplement their history by providing resumes of key people.

Explanation: Many sureties will not accept applicants with less than 3-5 years of operating history under the current name and ownership structure. When experienced construction professionals start their own companies, their resumes will be a key element explaining skills and capabilities demonstrated on prior projects.  Be sure to include contract details such as work description, year completed, $ amount and your personal responsibilities.

Tip #8: Hopping around – multiple sureties over a short period of time will raise concerns.

Explanation: Setting up a bond account is an expensive proposition for the surety.  They are looking for customer loyalty and stability.

Long term relationships tend to produce more capacity and better terms for the contractor.  If you like to hop around on your insurance every year, try not to do so on your bonds.

Tip #9: Maximizing bank credit can help your bonding.

Explanation: Even if you don’t expect to need it, maximizing your bank credit will help support your bonding. Bond underwriting includes a credit analysis.  If the bank supports you, it proves to the surety that you are credit worthy and therefore deserving of bonds.

In addition, bank credit is a financial resource that could be the key to completing a bonded project and avoiding a bond claim or default.

Tip #10: Make bid estimates sufficiently high.

Explanation: When submitting a bid bond request, make the “estimated contract amount” high enough to allow for last minute increases.  There is no harm in bidding less than indicated.  

BONUS TIP: For contract surety, site and subdivision bonds, come to the folks who get them done…

FIA Surety / First Indemnity of America Insurance Company
2740 Rt. 10 West, Suite 205
Morris Plains, NJ 07950
Office: 973-541-3417

FIA Surety: A carrier providing A rated, T-listed bonds in all states!


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