Construction bonds are a form of insurance designed to protect clients and taxpayers from the risks associated with contracting. Bonds are issued by licensed surety companies, which evaluate a contractor's financial and performance history when determining bonding qualifications and capacity. Contractors must keep solid records and stay on top of company financial transactions to maintain and maximize bonds.
- Surety companies are constantly re-evaluating contractors to determine if they are qualified for bonds. The bonding agent may also adjust bonding capacity based on changes in the company. It is important to maintain not only your ability to secure bonds, but also the highest possible level of bonding capacity. To achieve this, set up regular meetings with your surety agent to review your company's performance. Go over financial statements together so you can explain why receivables are late or why a certain project was not completed as expected. By maintaining communication with your bonding agent, you will have a better chance of keeping bonding capacity at the highest possible level.
- One of the main factors surety agents use to evaluate contractors is the company's level of debt and profit. By reducing expenses, you can cut your debt and increase net profit even in tough times. Consider selling off equipment that can be rented instead. You will save the cost of maintaining and operating these machines while helping to improve your bottom line. Another option is to cut overhead expenses around the office. Try limiting cleaning crews to twice a week, or reining in the cost of office supplies. Bonding agents will appreciate your focus on keeping expenses low and maximizing profit.
- Part of your company's ability to hold bonds is based on your level of assets. These include your workspace, vehicles and even cash. A bonding agent assumes that if you default on your bond, some of these assets can be seized to make up for losses. If assets decrease, your bonding levels may also be lowered or even rescinded. To keep assets high, make a plan to reinvest as much as possible back into the company instead of distributing profits among shareholders or employees. Hold on non-essential equipment purchases until your financial status is sufficient to maintain bonds. In desperate times, you can maintain bonds by making a personal loan to the company. This will help increase working capital temporarily while reassuring the bonding agent of your commitment to the company.
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