Starting your very own construction company can be a lucrative venture right off the bat as long as your business has been structured well and it secures the needed financial backing. When it comes to financial backing, surety bonding will be one of the most essential to helping your company secure early contracts and begin the journey towards financial success.
To learn more about how surety bonds can help you during the process of starting a construction company as well as the general steps for starting your company, read on.
The Main Steps for Starting a Construction Company
- Write a small business plan
- Determine your business’s legal structure
- Finance your business
- Register your business name and your tax information
- Obtain licensing and permits
- Obtain surety bonding
- Prepare to fill employee positions
- Find clients
Why Surety Bonding Is a Necessary Step for Starting Your Business
Most publicly funded construction contracts require performance and payment surety bonds per the Miller Act. Additionally, most project owners for high value contracts expect to see bonding in place for a bid to be considered responsible. Performance surety bonding hedges against risk in significant ways for project owners, and payment bonds help ensure that the practices of the contract recipients do not disrupt work on the project as a whole.
In other words, surety bonds are a given requirement for many contracts valued at $100,000 or more, whether they are awarded by a public agency or otherwise. Businesses without these bonds will likely have perceived gaps in their credentials, especially construction firms newly entering the market. They may either be disqualified outright based on project bid guidelines, or they could lose out to a firm with near-equal qualifications but the addition of a surety bond backing them.
For these reasons and more, securing surety bonding at the first stages of a construction company’s formation can demonstrably affect their ability to secure contracts.
Obtaining Surety Bonding as a Startup Construction Company
Surety bonding products are awarded to companies that guarantors can feel confident in. Typically, they will expect the company to have approximately 10% of the value of their proposed aggregate bonding limit in terms of total working capital (current assets minus current liabilities).
Since many construction companies start off in debt, securing surety bonding the normal way may be difficult. Companies in this position have several options, including:
- Participating in an SBA Bond Guarantee Program to gain easier access to participating bonding companies
- Using a surety bonding services company like NSSI to help you find the perfect bonding programs for your given credit, focus and needs, which can include assistance with SBA’s surety bonding program
These options are essential for helping upstart construction companies get their foot in the door and secure early contracts than can determine their future success.
If you would like to know more about securing surety bonding products as a new company or qualifying for the SBA Bond Guarantee program, then do not hesitate to contact us at 1-800953-6699 or via our online contact page.