How To Increase Your Construction Bonding Capacity

If you’re a small business construction contractor looking to scale your operations, you already know that growth requires moving toward bigger, better-paying, and more prestigious projects. However, stepping into the big leagues requires a larger financial footprint—specifically, an increased bonding capacity.

For many local builders, understanding how surety companies evaluate your business is the first step toward unlocking larger projects. Since surety underwriters lean heavily on your cash position, strengthening your cash flow and utilizing strategic financial tools are key to growing your company.

Take Cash-Wise Business Practices More Seriously

At For Construction Pros, Garry Bartecki of GB Financial Service reminds us: “Cash is king, but more cash is even better.” Alas, keeping the cash flowing often proves easier said than done in construction, where delayed payments are an industry norm. Still, you can help your business by curtailing sloppy administrative habits that have a way of slinking through operations. A passive approach to cash management can actively damage your bonding capacity. For example, un-deposited checks sitting on a desk, un-billed milestones on an active project, or a loose approach to collections, are signs that it’s time to tighten up. Toward that end, Bartecki suggests this homework for construction business owners eager to improve cash flow (and build bonding capacity):

• Cash needs to be on a worksheet by week including dates when payments due.
• Cash needs to be prioritized so you make the right payments at the right time.
• Review the billing process to see if you can speed up invoices by a week or two.
• Be told what checks or payments came in that day and whether they have been deposited.
• Actively chase your money.
• Immediately resolve any billing issues.
• Track days it takes to collect ( 30-40 day range)
• Calculate days sales outstanding and review monthly.
• Assign responsibility for these tasks.

Toward further increasing bonding capacity, Pablo Martell of Alpine Mar also urges converting short-term assets into liquid cash, and specifically encourages construction business owners to negotiate expedited payments and be more meticulous with change order management: 

• Don’t wait until a project is entirely wrapped up to see a return. When structuring construction contracts, clearly define payment intervals tied to project milestones rather than a massive lump sum at the end. To foster a mutually beneficial relationship with project owners, consider offering minor discounts for early payments, and ensure your payment terms are entirely transparent. Ambiguity in a contract is a breeding ground for payment delays that ripple negatively into your cash flow.

• Whether a change order is initiated by your team or the client, it must be documented, approved, and processed as expeditiously as possible. Lingering, unapproved change orders breed payment denials, legal disputes, and project delays—all of which are red flags to a surety underwriter. Furthermore, prompt handling of change orders allows you to lock in material prices early, protecting your profit margins from inflation or supply chain disruptions.

Additional Best Practices to Maximize Your Bonding Capacity

In construction, surety bonds are more than mere paperwork; they’re a testament to your financial stability and commitment to completing projects. To present the strongest possible case to a surety underwriter, concentrate on implementing these best practices into operations at your construction company: 

• Upgrade Your Financial Reporting: Move away from basic cash-basis accounting. Sureties prefer percentage-of-completion accounting, as it more accurately reflects the true financial health of ongoing construction projects.
• Keep Profit in the Business: Avoid the temptation to pull all excess cash out of the company at the end of the year. Leaving accumulated earnings within the business builds up your working capital and equity—the exact metrics underwriters look at to increase your limits.
• Build a Niche Record of Success: Prove you can handle your current workload flawlessly. Demonstrating a track record of completing projects on time and within budget makes underwriters much more comfortable raising your single and aggregate limits.

Understanding and Utilizing a Surety Line of Credit

When looking to scale, one of the most powerful tools a contractor can secure is a Surety Line of Credit. Much like a traditional bank line of credit establishes how much money you can borrow, a surety line of credit establishes the maximum amount of bonding credit a surety company is willing to extend to your construction business. It is usually expressed in two numbers:

• Single Limit: The maximum contract price you can bond for an individual project.
• Aggregate Limit: The total cumulative volume of bonded work you can have active at any given time.

Essentially,  a surety line of credit pre-approves you up to your designated limits. That way, you don’t have to start from scratch applying for a bond each and every time you want to bid on a new project to advance your business. When you get a surety line of credit in place with a reliable and trustworthy surety company, you may benefit from:

• Bidding Speed and Flexibility: Confidently pursue projects matching your criteria, and maybe even generate your own bid bonds instantly within your pre-approved limits.
• A Competitive Edge: Project owners prefer contractors who can instantly prove they have the backing to fulfill a contract. Having your bonding limits established in writing demonstrates to project owners that you are a highly stable, vetted, and reliable service partner.
• Strategic Growth Planning: Knowing your exact aggregate limit allows you to map out your pipeline accurately, ensuring you don’t over-extend your workforce or under-utilize your capacity.

By treating your financial management with the same precision you bring to the job site, and leveraging tools like a structured surety line of credit, your small business can seamlessly transform into a formidable competitor.

Surety Bonds: Options for Every Builder

As a national, direct, and Treasury-Listed surety bond writer that’s been in business since 1930, Colonial Surety Company proudly helps construction companies of all sizes improve bidding capacity, and demonstrate reliability. 

Our Hometown Bond Program provides local builders with credit based underwriting bonds for up to $250k—no financial statements required.  

Growing construction companies can receive Free Business Credit Scores instantly, just for submitting an easy, speedy Pre-Qual for a surety line of credit in writing. 

Once qualified, you can leverage all the benefits of The Partnership Account® for Contractors, including: a surety bond line of credit for up to 20 million single, and 40 million aggregate. Plus, you’ll:

• Issue your own Bid Bonds Instantly using our powers of attorney. Performance and payment bonds are speedier and easier than ever too. 
• Gain Real-Time Visibility: Use your private dashboard to view your underwriting profile and insightful financial data in real-time.

Put your business on a growth path with a few clicks, now: 

Bonding Programs at Colonial Surety Company

In business since 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial Surety Company is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Let’s connect today: Colonial Surety Company.