JW Surety Bonds

Surety Companies: How To Choose The Best For You

In this week’s article we will review what makes a good surety company, and more importantly, what makes a good surety company specifically for you. Before we get started, I should mention that pairing you up with the right bonding company is really your bond producer’s job (see: What Makes A Good Bond Producer?). The reason we are writing this article is for the people that like additional comfort that their agent is doing their job properly. So lets get started in learning why some surety companies are better than others and how subtle differences can make a big difference to your company.

A.M. Best Ratings
Bond QuoteA.M. Best is a well established credit rating system that grades the stability of surety companies. This is extremely important, as sometimes a bond will not be accepted by an obligee if the surety’s grade is too low. Typically a B+ grade or higher is accepted, but you will want to find out if the obligee has any specific requirements. Most bonding companies do not offer refunds on the first year’s premium, which would mean you purchased an expensive piece of paper!

Department of the Treasury’s Listing of Approved Sureties
The Treasury Department’s Circular 570 lists what bonding companies are certified to bond Federal projects. If you are in need of a bond to meet a government requirement, you will want to make sure the surety is on this list. Purchasing a bond from non-T-listed company could also result in a useless bond!

Turnaround Time
Not all sureties have the same turnaround time. With bonds being such a crucial part of your business, you need to make sure that your agent and the carrier have fast enough turnaround time (within reason). If you are getting everything your agent requested of you in a prompt manor, the agent and the carrier he/she set you up with should respond in an expeditious manor as well. Unfortunately, there is not much you can do to avoid this and you may need to do some trial and error. Your agent should know what markets are particularly slow or fast in their region. Keep in mind many sureties have branches and not all branches have the same turnaround time. This means you will need to mainly rely on the knowledge of your agent.

File Updates
All bonding companies are going to ask for file updates from time to time (with the exception of smaller commercial bonds). Typical file requests are updated business and personal financials at year end and sometimes mid-year for larger accounts. It is rare, but sometimes a surety will get a bit out of hand with the amount of updates requested in comparison to other carriers. If you feel they are consistently asking for too many updates, then talk to your agent about it. If your agent agrees that you are being required to send an abnormal amount of information then you may want to further discuss finding a new bond carrier. Once again, this is something where you will heavily need to lean on the knowledge of your agent, as you do not want to change sureties unnecessarily.

Rates
When it comes to commercial surety bonds, rates can vary dramatically. Contract surety bonds do not vary quite as much, but are typically larger bonds, so a small rate change can make a big difference when it comes to the premium. Talk to your agent about what carriers would consider you and what their filed rates are. Do not try to compare your situation to someone else’s, as each applicant is different and comparing rates from one to another simply does not make sense.

Indemnification Requirements
It is rare, but there are a small amount of bonding companies willing to bond companies without personal indemnification. Obviously, Fortune 500 companies are regularly written without personal or spousal indemnification, but what about the mid-sized companies? If the issue is very important to you, your agent may be able to get your bond approved without the regular surety indemnification requirements. However, you should know, it is extremely rare these days (a company must be very financially strong) and will often result in the compromise of something else (e.g. a higher bond rate).

How To Increase Your Contract Surety Bond Line

Bond QuoteLooking to increase your single or aggregate bonding limitations? This week we will explore what any contractor can do to wow their bonding company and increase the bond amounts in which they qualify for.

What Bonding Companies Want:
Bonding companies are guaranteeing your performance. Therefore, they want to feel comfortable that you have the experience and financial means to effectively complete your project. If a claim arises, the surety wants to know you will do everything you can to alleviate the situation and prevent a loss.

Experience:
A bond underwriter needs to know that the managing members of an organization have previous experience in the line of work in the contract. They also want to know about any education, accomplishments, and certifications. You will want to create a resume just as if you were applying for a job for the key individuals of your company. The goal is to give the underwriter the confidence that you will not cause a claim while being 100% honest.

Business Financial Statements:
Experience in a line of work does not necessarily mean you have the ability to complete the job without fault. An underwriter needs to know that your company is financially prepared Bond Quotefor all scenarios. They will need your balance sheet and profit and loss (also known as income statement) statements. The underwriter is going to want to see your most recent year end business financial statement (sometimes 2 years) and possibly a current statement. The current statement can be internal. Lets take a look at what you can do to make your company look it’s best on paper!

1) Choosing the proper accounting method

Cash Method – The most simplistic method of them all. It works just fine for taxes, but does not give the meaningful data that an underwriter needs in order to approve you for a large bond line.

Accrual Method – A big step up from a cash basis. It includes additions like accounts receivable accounts and gives an underwriter a much clearer picture. However, it may not be appropriate if you are a large contractor eyeing up large public contracts.

Percentage of Completion Method – An ideal method for most large contracts.

Completed Contract Method – The most sophisticated method of all. It is not necessary except for mega-multi-year contracts.

TIP: It is a good idea to discuss what method best suites your needs with your agent, as you don’t want to pay your CPA for work unnecessarily.

2) Choosing the proper statement type

Compilation Report – The most basic type of financial statement. A compilation report will not allow a contractor to do any work above $500,000.

Reviewed Report – A reviewed statement will suffice for most contractors, as using this type of report along with the “Percentage of Completion Method” will allow for limits up to $20 million.

Audited Report – The highest level of assurance for accurate figures. It is extremely rare for audited reports to be required.

TIP: Not sure what type of report your CPA is preparing? You can always find it on the first page of the statement.

3) Add to your net worth
A companies net worth is a very big determining factor for suretyship qualification. For tax reasons, you likely try to get your net worth as low as possible. However, when it comes to a bond line, the higher your net worth is the better. Lowering tax payments and increasing bond lines are completely opposite goals, so you will need to decide on what is more important. Let’s take a minute to review some things you can do to increase your company’s net worth.

Loan your company money – A temporary fix for a low net worth. Obviously, you are going to want the company to repay the loan someday, so net income will eventually have to increase to compensate. Also, the surety may require a subordination agreement that prevents the company from paying you back without surety consent.

Corporate Stock – Selling corporate stock would also increase your net worth and would be preferred over a loan.

Loan Repayment – If the company has lent any funds to the stockholders, now may be a good time for repayment, as this asset will be deducted by the surety, but not by Uncle Sam. If the loan is on your year end financial statements, a letter from your accountant that the loan has been repaid should suffice.

Recoup Depreciation – At year end your CPA likely depreciates the value of your equipment to maximize tax savings. Unfortunately, that doesn’t always go well with surety underwriting. You can recoup the depreciation and increase your net worth by getting an independent appraisal of the forced sale value of the equipment.

Decrease Expenses – Taking a smaller salary could be a big help if you can afford to do so. If you are paying yourself a large amount, you make be taking all of the net worth out of the company. Perhaps it is a good idea to take a smaller salary to increase your bond line in an effort to increase gross profit. Once you get the gross profit up you can put your salary back accordingly.

4) Keep your accounts receivable up to date
Accounts receivables over 90 days are considered noncollectable by bonding companies. This means they will deduct anything older than 90 days from your assets, thus reducing your net worth in the eyes of the surety. The one exception to this rule is for retainages. If that is the case, be sure to have your CPA provide clarification on it, as the surety will count A/R over 90 days if you can show you will eventually collect.

Keep your Work on Hand Schedule up to date
Also known as a “Work In Process”, a work on hand schedule informs the surety of your current workload. Underwriters can use the schedule to assist in forecasting future income for your company. A healthy forecast may persuade an underwriter to approve a borderline account.

Keep in mind that your work on hand schedule must also be kept up to date in order to keep your bond line clear. Doing so will ensure you are making maximum use of the line that you currently qualify for.

5 Things You Should Know Prior To Shopping For A Surety Bond Quote

Bond QuoteShopping for a surety bond is usually new to most of our clients. Typically, people feel very lost, as the entire process is new to them and they often don’t even know what they need. Here is a quick list to bring you up to speed on five things anyone shopping for a surety bond quote should know.

1. What is a surety bond?
Our regular clientele are required to post a surety bond in order to run their business, but they have no idea what the bond is or what it actually does. To put it simply, the bond is a guarantee of your performance. The bond form (provided by whoever is requiring the bond of you) states exactly what the bond is guaranteeing, usually a statute or contract. For more detailed information see our video tutorial, “What is a surety bond?.

2. How does a surety bond work?
A bonding company backs a bond guaranteeing your company’s performance. In return, you pay a premium, which is a percentage of the bond amount. If you fail to perform per the terms of the bond, a claim may be placed against it. If the bonding company pays out on a claim, they will then turn to you for repayment.

3. Shopping with too many agencies can be risky
Some bonding companies will actually decline an applicant for all agents if they receive the applicant from too many different agents. This doesn’t mean that you can’t apply with more than one agency, but you will have to ensure that the agents do not apply to the same carriers.

4. Take verbal quotes with a grain of salt
When shopping for anything, you want to know the cost right away. Unfortunately, one size does not fit all when it comes to surety bond rates. Without applying, the best an agent should be able to do is give you a range, not a precise quote. Agents giving you an exact rate are usually giving you the lowest possible rate, which everyone does not qualify for.

5. Give yourself enough time
Many of our clients apply for their bond weeks or even months prior to when they need it. However, some wait until the day they actually need the bond to call their agent to say they want to move forward with an approval. You should know that all bonding companies are going to require you to sign an agreement prior to allowing the agent to issue the bond. In most cases, an original agreement and payment must be sent to the agency to get the bond issued. After that, it is not reasonable to expect same day turnaround on bond issuance (1-3 business days, depending on volume is our current policy).

Get Your Surety Bond Fast!

Fast Surety Bond
So you are told you need a surety bond. You want to get up and running as fast as possible right? Today we are going to review what to look for in a bond agency and what you can do personally in order to get your surety bond fast!

Choosing the right agency:
The single most important thing you can do when in a time crunch is to choose the right bond agency to turn around your bond quickly. Obviously the rates they have to offer are important, but here are some other things you will want to consider in order to get your bond fast.

1. Are they brokering your business? – It is very common for bond agencies (especially smaller ones) to broker their business to a larger agency with access to more markets. The problem is that you are adding another middle man into the equation. This generally means a slower response time and often a higher rate.

2. Do they issue the bonds out of their office? – Many agencies have power of attorney with the carriers they work with, allowing them to issue the bonds directly out of the agents office. This allows for same day turnaround at times. If the answer to question #1 is “yes”, then you can almost be certain that they do no have the authority to issue bonds out their office.

3. What is their response time to your inquiries? – If an agency isn’t getting back to you within 24 hours with a question you have prior to paying them, there is little Surety Bonds Fastchance they will act quickly after you pay them.

4. Do they allow you to apply online? – An agency that still does not take applications online is likely not very technologically automated, which can make them slower to respond to the needs of their clients in comparison to the competition.

5. Ask your agent – Be sure to ask your agent what the average turnaround time is for an approval and for issuance. Some agents will make exaggerated promises of turnaround time, so you may want to request their response by email so you have it in writing.

Click here to apply with JW Surety Bonds!

What you can do to speed up the process:
Simply choosing the right agent doesn’t get you our of the woods yet. You will need to do some things on your end to make sure your original bond is in your hands as fast as possible.

1. Send everything your agent requests in a timely fashion – If your agent requests something of you, be sure to get it to them quickly. A good agent will not ask you to send anything unnecessarily. Most of the time, your application will not be submitted anywhere until you agent has everything they requested. Not sending your agent what they need could result in an extremely high rate or no response at all.

2. Have an open line of communication – Make sure you keep in close contact with your agent. You don’t want to call them unnecessarily and waste their time, but be sure that you are both on the same page. If you fax or email documents to your agent, it is a good idea to confirm receipt of them. Sometimes faxes and emails do not go through properly, which could cause a big delay in your approval or issuance.

3. Pay for overnight delivery – If getting your bond fast is extremely important to you then do not send any payment or original agreements by regular mail. You might be surprised to find out how often the U.S. Post Office loses envelopes. Situations can become even more hairy when cashiers checks are lost. Pay the extra $15-20 and make sure you send what is needed overnight w/ a tracking number from a reliable service like FedEx or UPS.