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As an agency, we focus the majority of our marketing efforts on the Internet. The web has been a great source of new business for our agency, but not for all lines of business. For instance, construction performance bonds are the #1 premium generator for our industry and yet we saw minimal increases even though we are the top ranking agency in all major search engines for the term. Commercial surety bond volume boomed from the Internet, but relatively few seemed to be searching for performance bonding to guarantee construction via the web. There are a couple of reasons why…
Geographical location - Sureties often are not interested in backing a principal that is too far away from the agent.
More complex underwriting - A contract bond line is much more involved to set up than a simple commercial bond.
People are set in their ways - Most are accustomed to getting their performance bonds from the same agency that does their insurance
 Fortunately for all, the times are changing. In 2007 we saw our first year of significant growth for performance bonding from clients finding us online. Why the changes? The world moves at a faster pace now and many sureties want to keep up! Geographical locations are still important, but some forward thinking sureties allow agents to write business anywhere they are licensed. Credit-only based contract programs are expanding their capacity allowing for easier contract underwriting, in some cases more simplistic than commercial bonding. Lastly, many contractors are finding that their old insurance agent simply does not have the markets or experience necessary in the specialized field of suretyship. This forces the contractors to search for an agency that is a better match for them, which often leads them online.
It is clear that the growth of the world-wide-web is not going to stop any time soon. Therefore, it is only natural to assume that the world of online performance bonding only has room to grow!
Posted by Administrator on November 19th 2007 to Auto Dealer Bonds, Bid Bonds, Commercial Bonds, Contract Bonds, Contractor License Bonds, Court Bonds, General Bonding, Misc. Commerical Bonds, Money Transmitter Bonds, Mortgage Banker Bonds, Mortgage Broker Bonds, Performance Bonds, Subdivision Bonds, Telephone Solicitor Bonds, Title Agency Bonds, Wage & Welfare Bonds The term “bond” can be applied to many different financial products, but what is “business bonding”? To be bonded means that an insurance carrier is guaranteeing the performance of your business. This is not be confused with a corporate bond, which is a financial instrument used to raise capital.  When a business gets bonded it does not raise capital, but does bring security to any work performed by said business.
How does business bonding work?
When a company is bonded, there are three parties involved. The first one is the company itself, referred to as the principal. The second party is the bonding company, also referred to as the surety or carrier. The third party is called the obligee. The obligee is the party that requires the business to be bonded. Here are two examples…
Example #1: The Contractor - A contractor wants to do work for a local school. The Miller Act is a law that requires the contractor to post a bond to guarantee the work. If the contractor defaults, the surety would pay another contractor to finish the work.
Example #2: The Auto Dealer - An auto dealer wants to obtain a license to sell vehicles in the state that he resides. The state licensing department requires that the auto dealer post a bond to guarantee that he will follow the states rules and regulations for selling vehicles. If the dealer were to be fraudulent, the victim could make a complaint to the state and the state could then file a claim on the bond to help the victim re-coop any moneys lost.
Some common bonding misconceptions
Getting your business bonded helps protect it - Not true, getting your business bonded actually protects your clients! If a claim arises, the surety will look to your company for repayment.
Everyone qualifies for bonding - Not everyone qualifies for surety bonding. True surety underwriting makes it so that only the most financially sound and responsible companies qualify for bonding (However, most do these days with the variety of programs available).
Everyone gets the same rate - Rates can vary greatly and can be changed due to your credit score, company’s financial strength, or what the bond is actually guaranteeing.
If you are in need of a bond, you may want to read our last article, How To Become Bonded. It highlights some of our best articles to tell you how to get the best rate for your bond and what you need to do to ensure you qualify.
Posted by Administrator on November 19th 2007 to Auto Dealer Bonds, Bid Bonds, Commercial Bonds, Contract Bonds, Contractor License Bonds, Court Bonds, General Bonding, Misc. Commerical Bonds, Money Transmitter Bonds, Mortgage Banker Bonds, Mortgage Broker Bonds, Performance Bonds, Subdivision Bonds, Telephone Solicitor Bonds, Title Agency Bonds, Wage & Welfare Bonds Today we are going to get back to the basics of bonding. We will go over what it means to be bonded and more importantly how to become bonded. We have gone over everything you need to know about surety bonding in previous articles. Therefore, we will highlight these standout articles rather than try to reinvent the wheel.
What Is A Surety Bond? - Learn what a surety bond actually is. You may be surprised to find out that they do not protect you whatsoever, but are a guarantee that is a form of credit.
How To Qualify For A Surety Bond - Not everyone qualifies to be bonded. Learn what you can do to ensure you are “bondable”. Reading this article will not only ensure that you get bonded, but also that you get the best possible rate!
Surety Companies: How To Choose The Best One For You - Bonding companies can vary on rates and underwriting practices. Find out what differences there are and how to go about finding the right carrier for your needs.
The process of becoming bonded is pretty strait forward:
1. Find out bond requirements
2. Apply for bond
3. Get approved
4. Sign indemnity agreement
5. Pay premium
6. Sign bond and send to obligee
If you read all of the articles above you will be well on your way to knowing what you need to do to become bonded. If you have further questions, feel free to ask them on our free surety bond forums.
When you are ready, you can apply for the bond type you need.
Posted by Administrator on October 15th 2007 to Auto Dealer Bonds, Bid Bonds, Commercial Bonds, Contract Bonds, Contractor License Bonds, Court Bonds, General Bonding, Misc. Commerical Bonds, Money Transmitter Bonds, Mortgage Banker Bonds, Mortgage Broker Bonds, Performance Bonds, Subdivision Bonds, Telephone Solicitor Bonds, Title Agency Bonds, Wage & Welfare Bonds 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
 A.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).
 Looking 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  for 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.
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