Increasing Your Construction Bond Limits
Construction Bond Limits: A Quick Overview
In case you are unfamiliar with bond limits for construction jobs, they are the pre-approved maximum value of bonds that you can qualify for. These are expressed as two values: there is your single limit, which is the largest bond you can get for a single project. There is also your aggregate limit, which is the total amount of bonded work on hand you can have at once for multiple projects.
For example, let's say you have a $250,000 over $500,000 bond line. The $250,000 is your single limit, which lets you work on projects up to $250,000. The $500,000 is your aggregate limit, which allows you to perform work on two jobs of $250,000, four jobs of $125,000, etc. at the same time.
Strong Financials Will Increase Your Bond Limits
When a surety company is considering writing a performance bond, your financial statements will be reviewed to help them determine how you handle your obligations and whether you are able to handle projects that come along with a larger bond limit. Your financial statements must show sufficient working capital, cash flow, equity and profit for a surety company to increase your bond limits.
When providing your financial statements to a surety company, it's highly recommended that you work with a construction CPA, as they know the industry inside and out and will be able to present your company appropriately when attempting to increase your bond limits. Find out what your CPA needs to do for your performance bond approvals.
Remember, the surety is providing you a form of credit with performance bonds, as the bonds guarantee you will complete projects according to your contracts. If any claims are caused due to faulty work, the surety company will pay them initially. However, you are ultimately responsible to pay the claims. Surety companies want to ensure that a bond line increase makes sense for your business because it doesn't only affect you if you cause claims, but the surety company as well.
The Right Bond Agency Will Help Your Business Grow
All surety companies have bond limits, some with higher limits than others. Don't miss out on the opportunity to grow your business with larger projects by working with the wrong surety agency. Be careful to choose professionals with the experience to match you with the right surety for your construction bonding needs for all projects, now and in the future.
Author: Eric Weisbrot
Eric is an industry expert that specializes in taking complex surety concepts and explaining them in terms that make sense to the general public. He also manages the JW Surety Bonds website and works with various partners to help further educate the public on suretyship using various mediums.
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