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Contract Surety

The bond company needs information in order to evaluate the contractor's bonding needs. This information is, for the most part, financial in nature but also takes into consideration the contractor's character and their capacity to complete a project. The bond company's analysis of this information is based upon characteristics reflected in the financial statement, such as working capital, net worth, timeliness of accounts receivables, use of the bank line of credit, federal tax timing issues, and debt ratios. These factors, coupled with how an individual bond company may evaluate them, will directly influence the level of surety bond credit offered.

Surety underwriters desire as much information as possible to make an evaluation of a contractor's overall financial picture at the time of the bond request. Financial statements are required with the initial submittal. For contract surety, a periodic monitoring of the financial information will ensue. Underwriters can be more confident in their decisions with greater amounts of information to evaluate.

For contract surety, the typical contractor submission should have:

  • Past 3 Fiscal Year End financial statements (include all notes and CPA cover letter)
  • Personal financial statement(s) of owners coinciding with the last Fiscal Year End. Form available.
  • Schedule of Accounts Receivable, with aging to coincide with latest fiscal statement
  • Completed contractor's questionnaire
  • Work in progress schedule (form)
  • Typical requested forms
  • A copy of the current bank line of credit letter

If a contractor can be bonded, it maximizes the projects contractors are able to consider.

The many risk factors associated with running a contracting business every day are unique. If they have managed to stay in business more than ten years, it is a major achievement because of the skills they must assume. Some of those skills include:

  • Managing employees
  • Purchasing
  • Business finance and accounting
  • Human resources
  • Lease terms
  • Sales
  • Marketing
  • Banking
  • Risk management for insurance
  • Quantifying the variable cost of productivity

A contract surety bond is guarantee from a Surety to the Obligee that a Principal will provide the agreed upon services.