Bonding 101 Basics

There are a lot of misconceptions about bonding. Getting bonded is really more like a banking product than an insurance product. Insurance is a 2-party agreement while bonding is a 3-party agreement. Therefore getting bonded can be pretty cumbersome for the first time, but once you get approved and know your limits it’s well worth the process! First of all, you will need to get together a few items.

A General Bonding Application – This can be obtained from your agent just to gather basic information.
Company Financial Statements – The latest fiscal year-end statements and current interim statement if over six months old.
Personal Financial Statements – All owners and spouses must provide a personal financial statement.
Resumes on All Owners– The bond underwriters like to get a reference of experience for all owners.

Once they have these items completed, your agent will be able to move forward in order to get approval for the bond project. Your agent can then submit these to the bond underwriter for approval.

A Work in Progress Statement or a “WIP” is another great tool that the underwriter will like to look at. This tool shows all the work that has been completed, that is in progress, and also what is in your pipeline. This statement also shows a profit margin throughout the job. Underwriters like to see this because it shows how a contractor can plan correctly for a job, and how they are doing throughout the time of the job.

It never hurts to have an interview whether in person or over the phone, since bonding is granted on the 3 C’s :

Capacity– Sufficient manpower, equipment, and back office support to complete the job.
Capital– working capital and net worth sufficient for the work program or job.
Character– Impeccable history of performance of all obligations as shown by the work and supply reference checks and reputation

After reviewing the applications the bond underwriter can judge someone’s character by references and a personal conversation.

These are just some of the basics of bonding, but again, the sooner you are able to get approved for a certain amount the easier it is for you to bid on future projects. If you need help sorting any of this information, call a professional risk advisor at Texas Associates Insurors.

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