5 Tips for Increasing Your Bonding Capacity

According to Dwight Reilly, a bonding agent/broker with Crosby Insurance Agency in Anaheim Hills, CA, “Securing a bond should be thought of as going to your banker and asking for a $1M loan. Bonds are similar to credit guarantees.”

Bonds are written by insurance companies because they have the assets to extend credit to contractors and the personnel to handle claims. However, the financial data required to secure a bond is similar to the data required to secure financial credit.

But to boost your bonding capacity, says Reilly, you’ll need more than a healthy bottom line. Here are his five top tips for increasing your bonding capacity.

1. Work with an experienced agent.  

“It’s important to align yourself with a bonding agent that understands the construction industry and current market conditions,” explains Reilly. “Your agent should anticipate needs and problems ahead of time, be your liaison with the underwriter and walk you through the entire bonding process.”

2. Implement construction-specific internal accounting systems.

Construction-specific accounting software, such as AccuBuild, will allow you to generate the financial documents needed to secure a bond. Financial statements, WIP schedules and aging reports are just some documents that you should be able to easily produce using your internal technology.

3. Produce timely and accurate information.

Although this tip ties into #2, it goes beyond the production of information to ensure accuracy. “When gathering data to apply for a bond, get your CPA on board early,” suggests Reilly. “This will ensure that your P&L statement is not only timely, but accurate as well.”

4. Develop a good relationship with your banker.

Reilly recommends increasing your bank line of credit prior to applying for a bond. However, don’t make the mistake of maxing out that extra credit. Keep the reserves on hand as a show of good faith to your bonding underwriter.

5. Be proactive.

Don’t wait until the bid is due to apply for your bond. Look ahead and take a proactive approach to increasing your capacity. “One of my clients typically secures bonds for projects in the $3-$4M range,” explains Reilly. “This client is preparing to bid on a $10M dollar job and is working on his bond roughly five months in advance. With that much lead time, we can overcome just about any obstacle that crops up.”

The most important key to increasing your bonding capacity, says Reilly, is to work with a professional rather than trying to achieve this on your own. “Successful construction company owners and managers understand the benefits of surrounding themselves with professionals they can trust and rely on – whether they are securing a bond, buying insurance, dealing with pension plan administration or implementing state-of-the-art construction software like AccuBuild.”

Crosby Insurance Agency is a professional independent insurance agency and brokerage firm serving construction companies in California and throughout the United States. In business since 1948,  Crosby has access to many of the most stable insurance companies in the industry, which allows its team to offer the highest level of protection for your company while delivering the cost-efficiency and payment plans you need. For more information, visit www.crosbyinsurance.com or call (714) 221-5200.