Why Your Personal Credit Matters for Construction Bonds
Construction Bonds Are a Form of Credit to You
When you get bonds for construction projects, whether it's a bid bond or performance bond, the surety company is providing you a form of credit. The bonds guarantee that you'll bid on a project accurately, and that you'll perform the work according to the contract; if you don't and trigger claims on the bond, the surety company will pay them. However, you are ultimately responsible to pay the surety company back. If a contractor has credit issues, the surety company may not want to provide a form of credit to someone who has trouble keeping on top of their personal credit and financial responsibilities.
Your Personal Credit is Reviewed for Jobs Big or Small
Your personal credit will already be looked at when you need bonds for construction jobs. Surety bond approvals for smaller contracts (about $350k and under) are based strictly on your personal credit. Your personal credit will be reviewed for larger contracts too (about $350K and up), but your financials are actually more important in the surety companies' eyes when considering your approval for these construction projects.
Can You Get Bonded with Bad Credit?
It is possible to get bonds for smaller construction projects with minor credit issues. However, if you have serious credit issues such as large collections, past dues, civil judgments, tax liens, bankruptcy or past due child support you will not be able to get bonded. Smaller contracts are based strictly on personal credit, and the surety company will see negative items as an indication of how you conduct your business, financial responsibilities and how you'll perform on the job.
You can obtain bonds for larger contracts with serious credit issues, but you'll need to provide strong CPA prepared financials and acceptable industry experience to demonstrate to the surety company that you're able to handle larger projects. Find out what your CPA needs to provide for your construction bonds.
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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