The Mystery of First Time Bonding

The Mystery of First Time Bonding

There are countless construction companies of all shapes and sizes that may have never needed a surety bond. Some residential contractors may move to commercial construction. Others may have been working for an owner or general contractor that didn’t require bonds, but just took on a new client that requires bid, performance and payment bonds. Some may be starting their business and need to establish a bonding relationship. 

So how do these companies obtain bonding, especially if they’ve never been bonded before? What do the bonding companies and underwriters look for in a company? Besides knowing the basics of bonding, what can a contractor do to establish bonding capacity? 

Bonding is, at times, shrouded in a cloud of mystery. Contractors may have visions of someone behind the curtain, in a grand Ivory Tower, making decisions on bonding capacity, or an underwriter throwing darts at a board to say yes or no. However, the underwriting and decision-making process works much like applying for a loan with a bank, and there are several things that a contractor can do to better their chances of obtaining bonding. 


For first time users, obtain a copy of the company’s credit report. Everyone is entitled to a free copy ever year from If there are any mistakes, get them corrected. 


Next, connect with a good bonding agent, one that understands small and emerging contractors and understands bonding. There are plenty of great insurance agents, but many of them don’t have all the markets that a bond professional has. Two good resources to find bond experts are the National Association of Surety Bond Producers and the SBA’s list of authorized surety bond agents


Finally, find and hire a construction-oriented CPA, one who understands construction. These CPAs can help prepare financial statements that can enhance and increase bonding capacity. They know the balance between taxes and bonding capacity, whereas some accounting experts may be solely tax-focused, which can be detrimental to a bonding program. CICPAC and CFMA are good resources for finding a construction CPA.


With a good credit report, surety bond agent and CPA in place, it’s time to think about the actual bonding capacity the company needs and learn about the different programs available. 

For bonding needs under $500,000, there are several programs that have a 24-hour turnaround based on credit score only. These programs are underwritten similarly to buying a car or applying for a credit card. The process consists of answering a few questions and if the company’s credit score is good enough, the application will be approved. The rates are usually higher (2.5-3%) given the quick turnaround and limited financial requirements. 

For bonds beyond the $500,000 limits the requirements become more stringent, and the process is more like applying for a bank loan. The surety companies like to see a company profile, financials, resumes, references, projects, bank statements and any other relevant information to help them make an informed decision. 

However, the sureties do not always require CPA-audited or reviewed financial statements for projects under $1.5 million. A QuickBooks or a similar internal accounting system can provide an accurate balance sheet and profit and loss statement that may be all the surety underwriter needs. The bonding agent can help prepare the bonding package for submission to a surety bond company. 

Of course, not all situations are equal, and contractors may find themselves in a more unique situation. The most important part of the bonding relationship is the dialogue and communication with the bonding agent. Discussing each situation with the bonding agent will help them guide the company towards establishing and increasing its bonding program.