Building Bonding (and Banking) Capacity From a Banker’s Perspective

Banker’s view on Bonding and Banking.

At some point in a construction business’ lifecycle, the need for credit is inevitable, be it a simple equipment purchase, a line of credit to support cash flow needs, or a loan to purchase and develop the company’s headquarters.

But when do business owners know its time, and how do they know their making the right decision for the company’s overall financial health and growth needs?

Just like in the article, Building Bonding Capacity from a CPA’s Perspective, while banking and bonding are similar, they aren’t looking at the same ratios. However, a good commercial banker and surety bond agent knows the balance between good/bad debt, and when to use debt to your advantage.

Below are some common questions from contractors surrounding their financials and building their bonding/banking capacity.


A: There’s a saying that it’s easier to get money when you don’t need it and harder when you do. While it may be over said, it is still highly recommended that business owners get to know their banker as soon as possible, even if they don’t have a credit need immediately. The relationship can start with a simple business checking account. This “character” aspect will go a long way in developing a working relationship with a banker.


A: Much like the surety business, bankers look at the five Cs of credit to determine the risk of an applicant. The five Cs are as follows: character, capacity or cash flow, capital, conditions and collateral.

  • Character: Character relates to the trustworthiness of the applicant. To determine whether the applicant is low risk based on character, lenders look at the following: work experience, references, past interactions with bank and credit history.
  • Capacity or Cash Flow: this refers to the borrower’s ability to pay back the borrowed money. When measuring an applicant’s capacity, lenders look at the following: business debt, cash flow statements and repayment of previous loans
  • Capital: Capital relates to the amount of money the owner has invested or reinvested into the business.
  • Conditions: Conditions refer to the state of the business: Is it thriving or falling? How will the money be used? What are the current economic conditions?
  • Collateral: Collateral is the last of the five Cs and refers to assets used the secured the loan.