Bond programs
How to increase your bonding capacity
Your bonding capacity is the largest single job and the total backlog a surety will bond for you, based mainly on your working capital, net worth, financial statement quality and track record.
Capacity grows by strengthening those numbers, upgrading the quality of your financial statements, and showing successful completion of progressively larger jobs.
Who it’s for
- Contractors whose surety turned down a larger job
- Growing contractors who want a standing bond program rather than job-by-job approvals
- Contractors moving from private work into larger public contracts
Single-job and aggregate limits
Sureties typically set a single-job limit (the largest contract they’ll bond) and an aggregate limit (your total bonded work in progress). Both are tied to your balance sheet and experience.
What moves capacity
| Factor | What sureties look for |
|---|---|
| Working capital | Current assets minus current liabilities, after the surety’s adjustments |
| Net worth | Equity in the business, often adjusted for receivables and related-party items |
| Financial statement quality | CPA-reviewed or audited statements, not just tax returns, for larger programs |
| Work in progress | Profit fade, billing position and backlog on current jobs |
| Bank line | An unsecured or lightly used line of credit |
| Track record | Completed jobs of similar size and type, and owner references |
What to have ready
- Your current single-job and aggregate limits, if you know them
- Three years of year-end financial statements, ideally CPA-reviewed or audited
- Interim financials and a current work-in-progress schedule
- Bank line details and your CPA’s contact
- A list of your largest completed jobs, with owners and amounts
- The upcoming job or jobs you want to pursue
Mistakes that cost people later
- × Relying on tax-return-basis financials when you want larger bonds
- × Underbilling or a weak WIP position at year-end
- × Pursuing a job far larger than your past work all at once
- × Changing sureties often instead of building a relationship
Questions people ask
How do sureties decide how big a job I can bond?+
Mainly from working capital, net worth, the quality of your financial statements, your work in progress and your track record on similar jobs.
Do I need audited financial statements?+
Not for every bond, but CPA-reviewed or audited statements are typically expected as programs get larger.
What is a work-in-progress (WIP) schedule?+
A report of each open job’s contract value, costs to date, billings and estimated profit. Sureties use it to see how jobs are performing.
Related bonds
Bond approval, amounts and terms are decided by the surety based on its underwriting. Approval is not guaranteed. A surety bond is not insurance for the principal: if the surety pays a claim, the principal and indemnitors must repay it. Kevin Brown Insurance Agency does not provide legal advice; consult your attorney about court filings and contract terms.