I never met a contractor who didn’t want MORE surety bonding capacity. Here are TEN ways to Boost that bonding line:
- 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.
- 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.
- 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.
- Stockholders / owners can add funds to the company as permanent capital (not a temporary loan).
- 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.
- 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.
- Update equipment appraisal. The monetary value of heavily depreciated equipment can be recaptured and added to the net worth calculation.
- 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.
- Improve accounting procedures and methods. Better job cost records? Get a mid-year statement? Get a CPA? Get a CPA Review statement? Etc.!
- 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
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