If you’re in the construction or contracting business, you know that bonding is essential to your operations and your success as a company. Bonding is what gives your clients, your material suppliers and vendors and your subcontractors confidence and peace of mind in your ability to pay for goods and complete the services you’ve contracted to perform.
Of course, as you grow your company, you’ll want to grow your bond capacity, or limits, so you can get larger bonds and thus bid on bigger contracts. Many small- to medium-sized companies struggle with how to do this. Let’s look at the steps you can take to increase your bonding limits and look at how an experienced surety agency is absolutely essential to your business success.
Understanding Bonding Limits
A bonding limit is not much different than a line of credit. It’s the maximum dollar amount for which you’re approved by a surety agency. It usually sets the limit on how much you can bid for any project. It’s also limited based on the total amount of bonds you’re already carrying on other outstanding projects. Growing these limits means convincing your bonding agency that you’re a good bet moving forward.
The first step in growing your bonding limits is to build trust. That means gradually working your way up by getting bonded on multiple projects and not needing to use those bonds. A bond essentially serves as a guarantee of a loan. Should you fail to live up to your obligations, the bonding company will step in to compensate the people who lose out, but you’re then on the hook to pay it back.
Because of this, bonding is essential, but it’s also a service you want to have and not use. The more you get bonded without needing to call in the bond, the better off you are. You should also start by showing that you’re organized and an effective communicator. Respond with all requested documents in a timely fashion. Don’t request bonds on very tight deadlines – this shows a lack of planning.
Build Successful Projects
Another aspect of bond limits is your ability to repay the bond if you do need to call it in. That means you should build a legacy of successful projects so that your company financials show an increased ability to repay your debts. In addition, you’ll need tangible liquid assets. Company equity counts, but not nearly as much as you might think, because it’s hard to cash it in. Surety companies are more concerned with assets you can liquidate and from which you can extract value when the time comes.
Grow Your Portfolio
Along the same lines, grow your portfolio. Make sure that it doesn’t show backward movement or stagnancy. It needs to show a steadily increasing value. This will not only show that your company value is growing, but that you are growing your expertise and ability to handle a variety of different kinds of contract.
Work With an Experienced Surety Agency
Finally, make sure you work with an experienced surety agency like NSSI. The more well-known, respected and experienced your agency is, the better off you’ll be. You’ll develop a relationship that will last for years, and you’ll see your bonding limits steadily grow. If you need help getting started with your medium-sized contractor’s standard surety program, contact NSSI for help and more information today.