How To Prequalify For A Surety Bond
Prequalifying for a surety bond can be a difficult process, especially if you have never done it before. Surety bonds are necessity for development contractors, who bid on public projects. All provinces and territories require government contractors to post a surety bond. This three-party agreement is designed to protect the public from harm caused by fraudulent behavior, exhibited by a contract company. Below, you will discover more information about prequalifying for a surety bond.
Surety Bond Purpose
While, the surety bond was designed to protect all consumers from harm, they also help to weed out the unqualified contractor. This ensures the government that contractors are going to comply with the regulations pertaining to the construction industry. If you are considering starting a construction company, but do not plan to bid on public projects you still may want to get the bonding process started as you may need to bonds in the future. Many project owners will not even consider hiring an non-bonded contractor, so if you want to survive in the contracting industry, it will be in your best interest to post a surety bond.
Surety companies have a big responsibility, when it comes to ensuring the government that they are following the underwriting protocols. The purpose of the prequalification process is to make sure that the applicant is qualified to fulfill the terms of a construction project. You must be prepared to undergo a rigorous prequalification audit, including a review of your business, credit history, previous work history, and financial assets. You will need to prove to the surety company that you are capable of funding the project and completing it, by the deadline agreed upon in the contract.
Your business reputation will play a huge role in determining, whether or not you qualify for a surety bond. If this is your first construction project, you may lack the experience and workload history that is required, but this does not mean that you will be denied a surety bond. In fact, there are other ways to prove to the surety that you will not default on the contract. You will need to strengthen your application, by providing the surety with a financial statement of your liquid assets and net worth. You can also post collateral on your bond, if necessary.
While, it is not necessary, you could have someone cosign on your bond. Of course, it will be very difficult to encourage someone to become a cosigner, but if you have someone that is willing to take the risks, then by all means do it.
Surety bonds require a one-time payment or premium, which is based on your credit scores and the contract amount. These costs may vary from one surety company to another, so if you are smart, you will do a bit of comparison shopping, before signing on the dotted line. The premium must be paid at the time of the validation, so make sure that you have this amount in your bank account prior to initiating the application process.
If you get turned down by one Surety Company, there still may be some hope to get bonded. Work on strengthening your application, before moving forward, because this will play a huge role in the determining factor.