What is the fee for a Bid Bond?
Bid bonds are free and are provided to the contractor as a service by the bonding agency.
What is the fee for a Performance Bond?
Performance bond rates are based on the four “C’s”.
- Character: does the Principal’s record suggest good character, that he or she will be faithful to their obligations?
- Capacity: does the Principal have the skill, experience and knowledge necessary to perform his or her obligations?
- Capital: does the Principal have the financial wherewithal to support or finance the completion of the project?
- Credit: does the Principal have an acceptable personal and business credit score?
Rates can range from 1-3% of the contract amount depending on the type of work performed and the surety’s underwriting evaluation of the contractor. The better the four “C’s”, the better the bonding rate you may qualify for.
Can I set up a bond program?
A bond program is the single job limit, aggregate limit and rate we set for you each year. For contractors with frequent bond needs, we consider bond requests on a specific case bases.
Will I need to provide financials every time I need a bond?
Sureties reevaluate your program annually, at the completion of your fiscal year. We consider the size of bonded jobs done with us and how they performed. We require a CPA-prepared business financial statement, bank reference letter, work-on-hand report, certificate of insurance, and personal financial statement annually. We may request internally-updated quarterly results, depending on the frequency of your bond needs.
Can I be bonded if I have poor credit?
We will look at the other underwriting information. Sometimes we will write the bond and have all contract funds go through an escrow company. There is an additional fee for this service but it allows us to write the bond for you. We may look at taking collateral in the form of an Irrevocable Letter of Credit (ILOC) supplied from your bank. They set the fee for this. The ILOC form and the financial institution must be approved by the surety prior to writing the bond.
Can I be bonded if I lost money last year?
Surety companies don’t like to see contractors lose money, but in today’s economy it is a frequent occurrence. If you have adequate equity in the company and good explanation for your financial performance, we will work with you.
What do bonding companies look for on my financial statements?
We look at the level of the statement, whether it is a CPA-prepared Compilation, Review or Audit. Most contractors secure desired bond credit with a Review-grade financial statement. We look at how revenues are recognized, requiring a percentage-of-completion method. We evaluate your working capital: current assets minus current liabilities. We evaluate your business equity and your debt-to-equity ratio. We look at your total revenue for the year and your profitability based on that revenue.
What is the largest job I could bond?
This depends on your working capital, equity, debt-to-equity, last year’s revenues, and largest previous job; either bonded or unbonded. We like to see at least 10% working capital of the job size, debt-to-equity of 3:1, and revenues considerably greater than the job. Based on the right project opportunity we can bond a project up to 3X your largest previous completed project.