4 Contractor Bond Tips for Construction Business
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Every construction business requires a contractor bond and insurance. There is a difference between the two, in that with a contractor bond, you as a contractor must pay the surety company in full in case of a claim while it is not the case with an insurance claim. It is important to understand the nature of your contractor bond to avoid making unnecessary losses. Here are a few contractor bonds tips that you should be aware of to protect your contractor business. You can visit this site https://www.contractorbond.org/ to learn more about these bonds.
1. Have Strong Financials
The stronger your financial statements, the more likely that a surety bond company will write a favorable performance bond for you. Surety companies use your financial statements to determine your ability to meet your obligations. They want to know whether you can complete your projects as agreed with your clients, whether you can pay your suppliers and your workers as well as your capacity to work on big projects that require larger bond limits. It is, therefore, good to show strong equity and cash flow to get approval to take on large projects.
2. Start with Smaller Projects
Bond limits are like credit score ratings. The better your credit scores, the easier it is to get loans and other financing. Bonds are a guarantee by a surety company that you will manage to complete a particular project. If you fail to complete an assigned project and a claim is filed against you, then you have to cover the costs of that claim. The more claims that are filed against you, the lower your rating goes. When you are starting this business, employ a professional to check your cash flow and determine which projects you are capable of finishing. It is good to start small, then work your way up as you improve your ratings. The more projects you complete successfully, the higher your rating and the more likely surety bond companies will approve you for larger projects.
3. Build a Strong Relationship with Surety Companies
When surety companies give you a bond, they extend a form of credit and guarantee that you will finish a particular project. If you fail to meet the requirements of your agreement and don’t finish the project, the surety company will be forced to pay the client and then charge you for that claim. You should try your best to avoid getting such claims since it taints your relationship with the bond companies. Soon, they will refuse to extend such bonds to you thus affecting your business.
4. Employ a Qualified Construction CPA
As mentioned earlier, financial statements play an integral role in getting a good bond from a surety bond company. You must provide a professionally prepared statement. If you are already an established company, employ the services of a construction CPA. These professionals have in-depth knowledge and experience of this industry. Their experience and knowledge will play a significant role when you are trying to increase your bond limits.