Qualifying for performance and payment bonds is determined by what surety professionals call the three “C’s” of underwriting. Those include a contractor’s Credit, Capacity, and Capital. Sometimes businesses are lacking one or more C’s making bonding a little more difficult. When that happens there are surety companies that serve this niche by putting together structured bond programs – using tools such as collateral, co-signer, funds administration, etc. in order to write the bonds. While this works very well, it does often put a strain on the contractor especially when they are forced to tie up cash in the form of collateral.
Thankfully there are bond programs available to address this issue. While most contractors know about the SBA bond guaranty program, a government program that guaranties the bonds up to 80-90%, there is also a California based insurance agency that administers a program for certain cities and public entities. It’s called the Bond Assistance Program (BAP) and administered by Merriwether & Williams Insurance Services. Please click here for a link to the website which has detailed information on each program.
Summary of the Bond Assistance Program
When a contractor is awarded a job for a public agency that BAP administers, if their current surety requires that collateral secures the bonds, BAP can and will issue an Irrevocable Letter of Credit up to 40% to the surety company to collateralize the performance and payment bonds. As a requirement of the City, who sets aside these funds to help small business with bonding, the contractor is required to use funds administration. Funds administration is a third party that manages the flow of funds on a project. Normally, there is a 1% of the contract price charge but the Bond Assistance Program pays for that as well. Some bullets on only SOME of the participants:
Some of the programs also offer a cost subsidy for CPA prepared financial statements. Many of the programs also offer loan and financing guarantees. Finally, all offer training and consulting for bonding, financing, and business management. Be sure to speak with a supervisor at Merriwether & Williams about some of the eligibility requirements for all these benefits.
I’ve been working with the good folks at the Bond Assistance Program since 2007 and witnessed firsthand the benefits of the program. If you would like to learn more about the program and how it may help you as a small business feel free to contact us at 916-737-5723. After a quick consultation we can connect you with a member of the Bond Assistance Program.