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Performance Bonds – How to Obtain

The role of the surety company is pre-qualification.  That is the true purpose of the surety underwriter, to pre-qualify a contractor for a job or jobs and back up that opinion with the large corporate balance sheet of an insurance company.  While each company will maintain some objective criteria, in reality, qualifying for surety credit is, by its very nature  subjective.

Each surety company has its own underwriting standards and requirements, but there are shared fundamentals common to the underwriting of most surety companies. Before a surety underwrites a bond, the contractor typically undergoes a careful, rigorous, and thorough process.  The larger the bond, usually the more rigorous the pre-qualification process will be. The similarities of the various surety markets is easy to recognize   Where hiring an agent that is a  performance bond specialist really adds value,  is by recognizing the differences in underwriting between the various markets.

For instance, some companies will not even consider a surety bond without a CPA prepared review quality financial statement   Some will but only up to a certain dollar level and that dollar level varies by surety.  Some surety bond companies will not consider an account if the owners ever had a bankruptcy,others will consider bonding if there was a bankruptcy in the past, and there are exceptions to just about every “rule” of bonding.

The surety underwriters are allowed to say no.  When I worked for the underwriters, I had unlimited declination authority.  I could decline an account for surety credit without having to discuss the case with anyone. An underwriter will get fired if they approve a lot of accounts that end up in the claims department.  Rarely, if ever is an underwriter fired for saying no to a prospective surety customer.

Hopefully after reading the above you understand the mindset of the underwriters.  Now what should you do to get bonds?:

  • Hire a professional surety bond agent.
  • Listen to the recommendations of your agent.
  • Keep your credit clean, both personal and business
  • Have realistic expectations.
The first couple of bonds are always the most difficult to obtain.  Hire an agent that truly knows what they are doing, represents a lot of different surety markets and , very important, one that you can develop trusting and collaborative relationship with.  
For more information, visit the Surety Information Office (SIO.org)
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