Tips for Choosing the Right Bonding Company

Surety bonding is an essential part of doing business in the construction industry. It’s required by customers to ensure that if anything should happen to your company that the project would be financially insured and be completed by another company. The bottom line is that the ability to obtain bonding is essential to winning new work. The challenge is that there are several bonding companies in the marketplace offering various levels of insurance. It can difficult for construction companies to know which company to turn and the right level of bonding to acquire. To help prospects, clients and others in the identification process, JLK Rosenberger has provided a list of questions to consider when selecting a provider below.

Choosing the Right Company

Just as surety bonding companies do extensive research on the contractors that they bond, it’s equally important for construction companies to investigate their options. Work to find bonding companies with the following qualities:

  • Financially strong – Bonding capacity is the pre-approved dollar amount of contract bonds that you qualify for. Your single limit is the largest bond you can get for a single job, while the aggregate limit is the total amount you can have at once for several projects. Choosing the wrong construction bonding company can limit your bond lines, and therefore your potential for work, which makes the decision that much more important. When considering companies, determine if the upper monetary limit of their bonding services meet your long-term needs.
  • Highly rated – The highest possible surety bond company rating is A++, but for certain projects, like public construction jobs, the bonding company must have a minimum grade of B+ or higher from A.M. Best (a company that analyzes businesses’ financial strength). If there is a particular rating requirement for a potential job, and you get your bond from a construction bond company whose grade is lowered, your bond can be rejected. This forces you to pay for a new bond with no refund.
  • Tested processes – Knowing in advance what scrutiny you’ll face when obtaining bonding will help you better prepare. An experienced company will have a well-tested process for reviewing financials and contracts, owner information, business plans, and other data. You should also be able to ascertain their policies regarding references and agreement default.
  • Solid surety knowledge and relationships – Obviously, the more your bonding agent knows about surety products in general and about local, regional, and national trends, the better advice they can offer. In addition, good working relationships with surety underwriters and other key decision makers at the bonding company will help them position your company in the best light.
  • Construction industry references and knowledge – Working with people who really know your industry makes a huge difference in how they approach the partnership. Your chosen bond company should have an extensive understanding of the construction industry (specifically the area of construction where your company focuses) , involvement in both construction and surety trade associations, and a good reputation for helping other construction companies like yours become more successful.

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The ability to obtain the proper bonding is essential to the company’s ability to grow in the long term. This means the company should be able to show access to the necessary working capital, cash flow, equity, and profit when approaching a bonding company. Therefore, working with a specialized construction industry CPA is vital. If you have questions about the surety bonding process or need assistance with any of your construction accounting needs, JLK Rosenberger can help. For additional information call us at 949-860-9902, or click here to contact us.