#188: 10 Tips to BOOST Bonding Capacity!

I never met a contractor who didn’t want MORE surety bonding capacity. Here are TEN ways to Boost that bonding line:

  1. Leave profits in the company. To the extent that bonuses, distributions and salaries are limited, this directly helps bonding (and banking) by maximizing net worth.
  2. Control 3rd party debt, such as bank debt. Limiting such borrowing improves the Debt to Equity ratio, which is a key benchmark for bonding. It also improves the company’s credit rating.
  3. Stockholders / owners should avoid borrowing from the company. This directly reduces the net worth analysis and hurts the Debt to Equity ratio – both are bad for bonding. If such borrowing has occurred, start the process of payback ASAP.
  4. Stockholders / owners can add funds to the company as permanent capital (not a temporary loan).
  5. Funds already loaned to the company by Stockholders / owners can be subordinated to the surety. It then may be treated as net worth rather than 3rd party debt. The loan can also be converted to permanent capital.
  6. Restructure 3rd party debt to longer term. Restructuring short term debt to long term directly increases the working capital calculation – an important benchmark for bonding.
  7. Update equipment appraisal. The monetary value of heavily depreciated equipment can be recaptured and added to the net worth calculation.
  8. Consider leasing buildings and equipment to preserve cash. Q. “Where did all the money go?” A. Oh, we bought a boat!” This DOES NOT help bonding. Company owners can personally buy such fixed assets and lease them to the company. Also, sell unused equipment and hold the cash.
  9. Improve accounting procedures and methods. Better job cost records? Get a mid-year statement? Get a CPA? Get a CPA Review statement? Etc.!
  10. Get a bank line. Even if you don’t need one, available bank credit directly helps the bonding capacity.

Bonus Tip: Pick the right bonding agent and bonding company.

  • The right agent knows construction and has other contractor clients.
  • The right bonding company is a problem solver, a highly experienced and confident underwriter – Like FIA Surety!

Specialists in Contract Surety, Site and Subdivision Bonds.

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

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We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

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