My construction company is doing well, why can’t I qualify for more bonding?

There can be several reasons why your construction company might not be able to qualify for more bonding, even if you’re doing well. Here are some potential factors:

Financial factors:

• Limited financial history: If your company is relatively new, you might not have a long enough track record of profitability and strong financial statements to satisfy surety companies.
• Low working capital: Surety companies want to ensure you have enough cash flow to cover project costs and unexpected expenses. Limited working capital can raise concerns about your ability to complete bonded projects.
• High debt-to-equity ratio: A high debt-to-equity ratio indicates you rely heavily on borrowed funds, which can be seen as risky by surety companies.
• In adequate or Negative Net Worth: Assets – Liabilities = Net Worth.

Business experience:

• Limited experience in specific project types: If you’re seeking bonding for a type of project your company hasn’t done before, sures might be hesitant until you gain experience in that area.
• Poor performance history: If you’ve had issues completing projects on time, within budget, or with quality problems, this can negatively impact your bonding capacity.

Other factors:

• Poor credit score: Your business credit score is a key factor considered by surety companies. A low score can indicate financial instability and make it difficult to qualify for higher bonding limits.
• Negative references: If you have negative references from past clients or partners, this can raise concerns about your reliability and trustworthiness.
• Market conditions: The overall construction market can affect bonding availability. During economic downturns, surety companies may tighten their underwriting criteria and be less willing to take on risk.

Recommendations:

If you’re facing difficulty qualifying for more bonding, here are some things you can do:

• Strengthen your financial position: Focus on increasing profitability, building working capital, reducing debt, and improving your debt-to-equity ratio.
• Gain experience in new project types: Start with smaller projects in the desired area to build your track record.
• Improve your project performance: Ensure projects are completed on time, within budget, and with high quality.
• Maintain a good credit score: Monitor your business credit score and take steps to improve it if necessary.
• Build strong relationships: Develop positive relationships with clients, subcontractors, and suppliers to obtain good references.
• Work with a bonding agent: An experienced bonding agent can help you navigate the process, identify suitable surety companies, and present your company in the best light. See the Benefits of Working With a Surety Bond Only Agency 

Remember, building a strong track record and financial stability takes time and effort. By addressing these factors and demonstrating your capabilities, you can increase your chances of qualifying for higher bonding limits in the future.

Surety1.com is a service of AssuredPartners one of the largest and fastest growing insurance agencies in the nation. Representing over a dozen surety bond companies, Surety1.com is the premier provider of surety bonds for the construction industry since 2003.

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