How To Get The Lowest Construction Bond Rates

How To Get The Lowest Construction Bond Rates

Contractor: I want to get a lower bond rate so my bids can be more competitive. What can I do?

JW: There are a lot of things you can do. We need to ensure your company makes the underwriter comfortable enough to offer a discounted rate. Let's start by talking about improving your working capital. It is a calculation of your current assets minus your current liabilities. It gives the surety a snapshot of your liquidity and ability to pay bills. The underwriter will not count any old accounts receivables you are owed towards your working capital, so you need to make sure to collect on old receivables.

Contractor: I guess we do have some old past dues that need attention. I'll make that a priority. What else can I do?

JW: Limit company loans to officers and employees. These loans show as an asset on your balance sheet, but the surety is going to discount them from your working capital. If your company's cash balance is ever low, you don't want to be relying on these loans as your fallback plan.

Contractor: I do have a loan I took out from the company that I can pay back. These tips are great. What else do you have?

JW: You need to ensure that you leave some equity in the company each year.

Contractor: That's not exactly what I like to do for tax reasons.

JW: I understand, but you need to know that what is best for your bond needs is not always tax advantageous. The surety is going to want a minimum amount of equity to stay within your company based on your bond limits. Adding to that equity position year after year is always best, even if it is small growth.

Contractor: Do you have any tips to improve working capital that don't conflict with my taxes.

JW: Of course! That's what separates the surety experts at JW from the run of the mill bond agents. Refinancing short term loans like a bank line of credit into a long term liability will instantly boost your working capital. Remember when we said the surety is only going to count your current assets and current liabilities? As we discussed, that can hurt you on past due accounts receivables. However, it will help you on turning any short term debt obligation into a long one.

Contractor: I guess I need to sit down with my CPA and my bond agent to determine a strategy fit for my company.

JW: I couldn't have said it better myself! That is why it is so important on choosing the right surety agent and CPA. If either are not well versed in your industry, it could cost you greatly in taxes and in bond limitations. There are a lot of other tricks that can be done to improve your position, but items such as recouping depreciation, selling corporate stock, and personal loans to your company are all something that should be discussed on a case by case basis.

Contractor: Wow, there is a lot more to this than I thought. You've provided me a good starting point for discussion with my agent and CPA. Thanks!

JW: No problem. However, you might want to check out our next video before scheduling the meeting. I want to tell you "How to choose the right surety experts".