How to increase your contract bond line
Increase Your bond line
Transcript: How To Increase Your Contract Bond Line
Contractor: I want to increase my bond line so I can bid larger jobs. What can I do?
JW: That depends. What is your current bond program?
Contractor: I only have a $250,000 bond line, but want to graduate to the next level.
JW: No problem. I can give you some tips to ensure you don't limit yourself and tell you how to qualify for bonds up to $20 million or so. You're current bond line is small and was likely underwritten solely on personal credit. The surety will look at far more than personal credit to grow your bond limits. Your business financial statement is the number one tool used to assess your likelihood of default on a job and your ability to reimburse the surety should a claim be filed. To start, we need to ensure we choose the right financial statement preparation for your goals. Do you have a CPA?
Contractor: Yeah...I've been working with someone that specializes in construction.
JW: That's great! Choosing the right CPA is the first step. Underwriters can only make use of financial statements created in-house for smaller accounts, so it's good that you're working with an outside firm.
Contractor: My CPA asked me what accounting method I'd like to have done. What do I tell him?
JW: The cash method will cost you the least, but it is too simplistic for anything other than small contractors. The accrual method is the minimum needed for a medium sized contractor. The percentage of completion method would allow for a bigger jump in your limits if the company is financially healthy. The completed contract method is overkill for all but the largest of contractors.
Contractor: Ok, so it sounds like the percentage of completion method best fits my needs.
JW: You need to know that the preparation method is not only important, but the statement type is as well. There are three levels of detail a CPA can prepare the statement with. In order of detail from least to most they are: compilation, reviewed, and audited. I prepared a chart at the bottom of this webpage for you to see approximate limits when looking at statement method and type combinations.
Contractor: That's very helpful. Thanks!
JW: No problem. Now that you know what statement preparation fits you best, we need to go over how to make the statement more attractive to the surety. I have a lot of tips on what you can do to get the lowest rate on contract bonds.
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