THE IMPORTANCE OF SURETY BONDS
single projects with an aggregate of the same amount . These programs rely heavily on the contractor ’ s credit score . This entry-level program can help your company develop a track record to establish surety credit ,” says Ken , “ and at that point , you can start looking at larger jobs . However , one of my biggest challenges is managing contractors ’ expectations , because it ’ s my job to keep them from taking on more risk than the industry will allow . You have to prove that you can complete the project for which you ’ re trying to get bonded and that you have the financial strength to cash flow that project .”
A contractor ’ s bonding capacity is determined after all personal and business financials documentation has been submitted . “ If you qualify for up to $ 750,000 in bonding , then you must perform jobs in that range or less to build your track record , put in place financial reporting systems , invest money back into your company , ensure that your jobs are profitable , and establish a line of credit ,” summarizes Ken .
Ken emphasizes that contractors need to grow their business in a sustainable manner . “ If you want to perform larger jobs , you just have to take it slow . I have clients who started out small and are now doing $ 11 to 12 million jobs because they were smart , they listened to my advice and they didn ’ t try to grow too fast . If you take too large a risk or are not ethical , it will come back to bite you . When you do start making a profit , that is not the time to pull money out to buy expensive real estate , cars and other unnecessary luxuries – spending like that can degrade your company ’ s equity and working capital and will be detrimental to your long-term success .”
Conclusion
Surety bonding in construction addresses the project owner ’ s need to have a guarantee that the contractor with the winning bid will follow through to meet the terms and requirements of the contract . “ In some ways , brokers are almost like therapists ,” reflects Ken , “ because we help sort out and counsel our clients on issues that can affect their ability to bond . Your surety broker wants to help you succeed and will be honest with you about what you need to do in order to qualify for bonding and what amount is realistic based on your financial strength and experience .”
Ken encourages contractors to get started right away on setting up the systems and practices that will put them in the best position possible when applying for bonding . “ It doesn ’ t have to be overwhelming if you get the right guidance and support , and you will feel a great sense of relief when you know you ’ re on your way to being able to bond .”
For more information about Poms & Associates Insurance Brokers , LLC or to get in touch with Ken , visit the company website .
FIRST QUARTER 2025 CONTRACTOR TOOLS - 21