Growing a construction firm is not easy. A lack of surety credit is a constraint to growth.
Virtually all public works and private projects require performance and payment bonds; a strong bonding relationship is essential for success and profit. Having the opportunity, man-power, and financial resources may not be enough. Chances are, your prosperity will depend on your bonding company. The following are 5 proven ways to get more surety credit, to ensure more profits.
Not all CPA’s are created equal. Construction poses some unique accounting issues that not all accounts are qualified to address. A financial statement prepared by a construction oriented CPA firm will go far to maximize your surety credit. The financial statement is the basis for all surety credit decisions. A financial statement that the surety company can rely on is essential. To find a good construction CPA, reach out to the Construction Financial Management Association, or some other construction related organization
Surety company representatives are not construction professionals. They have to rely on intangible information to make credit decisions. A written business plan that is both realistic and detailed shows that you have given thought to growing the company. You have identified the potential pitfalls and how you plan to manage them. You have outlined your key personnel, strengths, weaknesses and opportunities. The U.S. Small Business Administration has a free business plan tool available online.
The worst time to go to the bank for a loan is when you actually need one. Obtaining a strong bank line can increase your surety credit because it shows you have the ability to raise cash should you need it. The surety does not want to liable for a bond claim. A good working capital line of credit can go a long way to easing the concerns of the surety.
I have a client who points out the conflicting advice he gets from his business advisers. His attorney tells him to take money out of the company, shield it from corporate liability; his banker wants him to constantly be in his bank line. As a surety agent, I advise him to keep money in the company. His surety bond line of credit has grown from $2 million to $15 million in a matter of years. That is because he took my advice. I used to have a boss who told me, “no one ever went out of business with a million bucks in the bank. ” Keep cash in the company, use your bank line sporadically, if at all, while still paying your bills on time.
There are lots of insurance agents who specialize in bonds. Do yourself a favor, let a general insurance agent do what insurance agents do best: write insurance. Surety bonding is a totally different product than insurance. Insurance is a risk transfer product, while surety bonding is a financial guarantee. You would not go to your dentist to have open heart surgery, even though they are both doctors. An agent who does not fully understand the surety product can ruin your chances of increasing your bonding credit. A surety bond specialist will pre-qualify and consult with you prior to sending paper to the surety. The surety specialist will make a complete submission, identify the potential issues and provide a solution for those issues to the surety company. Just forwarding paper over to the surety company often leads to an unnecessary failure.
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