Tips to Increase Bonding Capacity

Insurance is an important part of every business, let alone construction. So much so, that when we focus on a construction bond, we are essentially talking about an insurance policy. This policy protects the parties involved in the bond if the work does reach completion, payments are not made, or repairs are not made within the warranty period.

Every construction bond involves three parties. They are the obligee, the principal, and the surety company. The obligee is the party being protected by the bond; the principal is the party that buys the bond. And lastly, the surety company is the one that funds any claim brought forth. And that is where we come in as Equify Financial. As long as a claim has been proven with tangible evidence beyond a reasonable doubt, we step on to pay the claim.

Here are some of the ways we can help you sort out with our construction bond:

  • Protect suppliers from non-payment.

  • Protect owners during warranty periods.

Regardless, the constraints of each construction bond are dependent on the kind of work being performed by your company. The person you are doing the work for, plus the jurisdiction requirements, are other factors we consider.

Our main aim is to restore balance if there is an issue between the obligee and the principal. And we, as the surety company, carry out our investigations, and if the claim is valid, we reimburse for all the damages suffered.

Now one may ask, who pays the surety company?

Well, the principal does. Since they are the one that purchased the bond, they owe us that courtesy to pay back what we helped them sort. So in a way, we loan them indirectly by paying the obligee from our pockets.

Our other responsibility is to keep the contractors on toes to meet all they had set out to do. They need to complete the work, honor the warranty, or settle the bills with the suppliers and subcontractors if that was the original deal.

So much so, as Equify Financial, we take a lot of time to assess the risk of bonding a company. And so this brings us to our main focus, the bonding capacity. So what is a bonding capacity?

In the simplest of terms, a bonding capacity is the limit of this risk a surety company is willing to take to cover a principal. We discuss more on bonding capacity in the next section.

The full definition of a bond capacity 

The maximum amount of coverage a surety like us is willing to provide is called a bonding capacity. And so every company that is looking to increase bonding capacity aims to raise this number of deals.

At Equify Financial, we dig deeper and get to know the company inside out before we assure you that we will increase bond capacity with your company. Here are some of the things we assess:

  • Your company’s financial standing

  • Your company’s experience

  • Your company’s business practices

  • Your owners.

After this assessment, we usually use two terms regarding the commercial loans under the bonding capacity. And they are a single job bonding limit and an aggregate limit.

Single job bonding limit

This is the surety we are willing to extend to your company for one project. It may be on payment of suppliers, subcontractors, laborers, or damages when work is not complete. This is only extended for one project; anything else needs another bond contract.

Aggregate limit 

An aggregate limit is the total amount of bonded work that the surety will back at one time. So this means that these bond contracts may be several for several companies.

Here is an example of putting these two into perspective:

Suppose we have a bond contract of one million dollars with a contractor with an aggregate limit of five million aggregate; the contractor can have five 1 million bonds or divide it to ten half a million-dollar bonds on one go. 

The bond officially comes to termination when the work is completed or the warranty period has expired.

Why a high bonding capacity is important

Bonded construction projects necessitate a higher limit because of the following reasons:

  • It shows that the contractor has a stable business.

  • It shows that they complete their work on time.

  • It shows that they work tirelessly to avoid bond claims.

So much so, a higher capacity bond capacity shows that the contractor has experience in completing projects. And this means that when a client seeks you, they get the assurance you are competent in finishing what you started. 

A high bonding capacity is also vital in helping a company secure more jobs. The project they seek may or may not be bonded, but that high limit is a good bidding item. This also helps them to stay ahead of the competition.

How a company qualifies to get a bond contract

The first thing they need to qualify to get a bond contract with us is to have a portfolio with completed jobs. And so this rules out any companies or businesses that are starting. For Equify Financial to carry out an in-depth investigation on you and your trades, you must have a portfolio.

We also need references and proof of the work done.

How a company can increase their bonding capacity 

Here are some of the ways your establishment can increase bonding capacity with Equify Financial:

Please provide us with proper financial statements and reports 

When you provide us with conclusive paperwork related to your financial standing, we will be able to consider your requests. This is the primary investigation area when we are looking into the financial health of your company. When we request reports or statements, and you provide them, we will have a good relationship, and this will increase the rate at which you will be able to get commercial bonds from us.

By improving the personal finances of anyone on the company’s board

Since we look at even the owners’ financial standing, when each party improves their finances, it works in the company’s best interest. This way, the company becomes likely to increase its bond capacity with us. That said, you must realize those unhealthy debts will work to your disadvantage. Healthy loans may be exempted.

By building a successful projects portfolio

How to increase bond capacity for your business will also entail offering us evidence that you have been in business and making profits. We need to see that the projects you have taken in the past you have completed according to the client’s satisfaction. And the best way you can show us that is to formulate a portfolio with all the facts. 

Suppose there was a project that halted unprecedentedly; you also need to include it and state why that was the case. If the stopping of the project was not your fault, then you have nothing to worry about. As a matter of fact, we commend your honesty. And this may raise the chances of you increasing your bond capacity with us.

By choosing us as your surety company 

Last but not least, when you have us on your team, you are assured that your overall bond capacity will be increased. For one, we will always ensure that we honor our deal. If we have to reimburse any obligee, we will do it. And we will also do investigations to the best of our abilities.  

We not only offer you surety, but we also extend consultancy services, commercial bonds, commercial loans, and any other related matter when it comes to construction.

How to protect your high bonding capacity 

Getting to a high bond capacity is just one part of the journey; you must also work tooth and nail to stay there and keep increasing your company’s bond capacity. That said, here are some of the ways you can protect your high bond capacity and even improve it:

  • Maintain a healthy financial status of your company.

  • Maintain good relationships with your clients.

  • Complete all the projects you sign deals for.

  • In case of any disagreements, sort them amicably.

  • Keep adding successful projects into your portfolio.

  • Upskill your services.

  • Stay away from money scandals.

When you do this, you are growing as a business, thus, a great way to increase beyond capacity for your company to greater heights.

Take away

Bonded construction projects offer all parties involved in those projects peace of mind since they are sure they are safe. The contractors, sub-contractors, and suppliers are confident that they will get paid no matter the result, and the principal is held accountable to finish the projects as agreed. So in hindsight, it makes all parties better, thus work putting their best foot forward.

With that, a construction company must raise its bond capacity. And by following this guide, they shall do it without breaking a sweat. It raises the value of the company, making you secure more projects and beat the competition. So much so, increase your bond capacity, and work harder to grow it and protect it.

Strengthen Your Business

Our promise

Our story started with building a team of people that have experience working in the same industry as you. We think like you think. We listen to your story and meet you where you are.

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