The surety bond company needs information in order to evaluate the contractor's “bondability”. 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 a contract bond, 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 bonds, the typical contractor submission should have:
- Fiscal Year End financial statements (include all notes and CPA cover letter)
- Personal financial statement(s) of owners
- Schedule of Accounts Receivable
- Completed contractor's questionnaire
- Work in progress schedule (form)
- If a contractor can be bonded, it maximizes the projects contractors are able to consider.