How to Get Your First Surety Bond

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A set of plans may have been purchased recently for a bid. There is a section called “bid security”, which requires bidders to include an additional 10% of their bid. It must not exceed $20,000 or something similar.

Next, you might ask, logically, where can I find a surety bond? There is hope. You need to be able to trust the process of public bidding. Because of the lack of money, contractors are increasingly turning to the public sector (state and municipal government work) for bidding. However, the public sector does not offer a perfect solution. Public work is highly competitive these days and profit margins are being squeezed.

It’s back to the basics. How do you obtain a bond? Your first step is to contact a local bond broker. For a complete list of brokers in your area, visit nasbp.org. You can also ask friends, colleagues, and construction contacts to see if they have any recommendations. Call the brokers that you have been referred and tell them about your situation. You will find a professional surety agent who can guide you through the process. They will also be able set expectations. This is crucial because not everyone is “bondable”. Don’t forget that insurance is not based on surety.

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There are two possible routes your broker could take to bond your request, depending on the amount of your bid estimate. Most cases will require a two to three page application for bids under $250,000. If you have a personal score of at least 650 and you meet additional job-specific conditions (scope, job length, etc.), you can expect to be approved for your bid. You may need to meet additional criteria depending on your surety company. But for small bids, approval can be quick and painless.

If your bid exceeds $250,000 or if you have a backlog exceeding $250,000, then the requirements for surety approval are higher. There are huge differences between small bond programs versus a standard market surety program. The process of establishing a standard program for surety is lengthy and requires a lot of financial documentation. You should provide the following to your broker (or prospective surety firm): Most recent fiscal year end corporate financial report (ideally prepared as an overview and on a percentage basis); most recent personal financial statement of each owner of the company; ageing accounts receivable statement which ties in with year end balance sheet; current work in progress statement; corporate taxes returns…

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While your broker can help you with the above, a CPA who has construction experience is a better choice. My accountant friends are always amazed at how few CPA’s can calculate the percentage of completed financial statements. Financial reporting is essential for surety companies. Having the right CPA could make all the difference in getting bonds… or not getting bonds.

There are many steps involved in the process. However, this article will show you how to get started. Contractors must commit to getting bonded. Hire a professional surety bond broker and ensure your CPA is present throughout the entire process.