The decision makers in Bonding Companies are called underwriters. These individuals are charged with the responsibility of only providing bonds for applicants that appear to present no potential of causing a bond claim, loss or expense. Other than with a crystal ball, what are the criteria underwriters use? What causes them to immediately decline an account?
1. Start with the financial statement. If there is no financial statement, or if you obtained a tax return “in lieu of,” it’s a flag because all but the smallest bonds require a CPA prepared financial statement.
2. On a CPA statement, does the first sentence of the cover letter say it is “compiled?” That’s a flag if the bonds needed are more than $250,000 each. Above these levels, sureties want a “review” or “audit” financial presentation.
3. Look on the Balance Sheet. If current assets minus current liabilities are a negative number, or if total stockholders equity is negative (numbers stated in parenthesis are negative), that’s a big flag.
4. Look on the Profit and Loss Statement; it’s a flag if net income is a negative number.
5. If the Contractor Questionnaire states that the company is less than one year old – Buzzzz! It’s a problem. Most underwriters require that their new clients have survived in business at least a few years.
6. Also a problem if the company or any of its owners have declared bankruptcy (company or personal.)
7. Open litigation is a problem.
8. If the questionnaire says full indemnity of the owners and spouses is not available, that’s a flag. All sureties require this “hold harmless.” It’s one reason bonds are not insurance.
9. It’s an obstacle if the term of the project needing a bond will be in excess of 2 years.
10. Also an issue if the new project is more than a 50% increase over the largest job completed in the past.
11. Subcontractor’s bonds given to general contractors can be a problem if a special bond form is stipulated.
12. A weak company or personal credit report (all owners and spouses) can prevent surety support. Problem areas are chronic slow pay, collection items, tax liens, open judgments, too many credit inquiries and a low score.
If any of these factors exist on your account, changing them will improve your likelihood of obtaining bonding support.
via Blogger Bid Bond