Many contractors find a great project, put together a competitive bid, and then discover one important requirement: the job must be bonded.
If you are new to surety bonds, that can sound complicated. The good news is that bid bonds, performance bonds, and payment bonds are easier to understand once you know what each one does and what the surety company needs to approve you.
At Insurance Incorporated, we help contractors shop for competitive surety bond rates and get the right bond in place so they can bid with confidence.
What Is a Surety Bond?
A surety bond is not the same as regular insurance. With insurance, the policy protects you from certain losses. With a surety bond, the surety company is guaranteeing to the project owner that you will do what you promised in the contract.
There are three parties involved:
The contractor — the business performing the work.
The project owner — the city, county, school district, general contractor, developer, or private owner requiring the bond.
The surety company — the company financially backing your promise to complete the job and pay qualified subcontractors and suppliers.
What Is a Bid Bond?
A bid bond is usually required when you submit a bid on a bonded project. It tells the project owner that your bid is serious and that, if you are awarded the job, you should be able to provide the required performance and payment bonds.
In plain English, a bid bond helps prove that you are not just throwing out a number. You are financially and operationally prepared to take the job if you win.
What Is a Performance Bond?
A performance bond guarantees that the contractor will complete the project according to the contract.
If the contractor defaults, walks off the job, or cannot finish the work, the surety company may have to step in. Depending on the situation, the surety may help complete the project, arrange for another contractor, or pay covered costs up to the bond limit.
What Is a Payment Bond?
A payment bond guarantees that certain subcontractors, suppliers, and laborers are paid for the bonded project.
This is especially important on public works projects, where subcontractors and suppliers may not have the same lien rights they would have on private jobs. The payment bond gives them another way to seek payment if they are not properly paid.
What Will the Surety Company Need to Approve the Bond?
Surety companies underwrite contractors carefully because they are financially guaranteeing your work. They want to understand whether you have the money, experience, organization, and track record to complete the project.
Here are the main items underwriters usually review.
1. Company Financial Statements
Your company financials are one of the most important parts of the underwriting process.
The surety company may ask for:
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Balance sheet
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Profit and loss statement
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Cash flow information
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Tax returns
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Bank statements
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Debt schedule
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Accounts receivable and accounts payable reports
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Work-in-progress schedule
The underwriter wants to see whether your company has enough working capital, cash flow, and financial strength to handle the job. A contractor may be very good at the trade, but if the business is undercapitalized, a large project can create serious financial strain.
2. Personal Financial Statements of the Owners
Surety companies often ask for personal financial statements from the owners of the company.
This helps the surety understand the financial strength behind the business. They may look at personal assets, liabilities, real estate, cash, investments, and other financial obligations.
For many small and mid-sized contractors, the owner’s personal financial strength can be an important part of the approval.
3. Credit History
Credit matters in surety underwriting.
A strong credit profile may help a contractor qualify for better rates and higher bond limits. Poor credit does not always mean a bond is impossible, but it can affect pricing, approval speed, and the amount of information the underwriter requires.
4. Similar Project Experience
One of the biggest questions underwriters ask is simple:
Have you successfully completed similar projects before?
If you are bidding a $750,000 electrical job, the surety wants to know whether you have completed electrical projects of similar size and complexity. If your largest completed job was $100,000, the underwriter may be cautious about approving a much larger bond.
Sureties like to see steady growth. Jumping too quickly into a much larger project can create risk.
5. Contractor Experience and Resumes
The surety may also review the background of the owners, project managers, estimators, and key employees.
They want to know:
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How long you have been in business
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What type of work you specialize in
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Whether your team has experience managing bonded jobs
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Whether you have the labor, equipment, and supervision to complete the project
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Whether your prior jobs were finished on time and within budget
Experience matters because bonded jobs often involve strict contracts, deadlines, paperwork, inspections, and payment requirements.
6. Current Workload
Sureties also look at how much work you already have under contract.
A contractor may be qualified for one project but stretched too thin if they take on too many jobs at once. The surety wants to know that you have enough people, cash flow, equipment, and management capacity to handle the new project along with your current workload.
7. Prior Surety Experience
If you have been bonded before, that can help.
Underwriters may ask:
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What surety companies have bonded you in the past?
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What was your largest bonded job?
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Were there any claims?
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Were projects completed successfully?
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Do you already have a bonding line?
A clean surety history can make the process easier and may help you qualify for better rates.
What Is a Bonding Line?
If you regularly bid on bonded jobs, you may not want to start from scratch every time you need a bond. In that case, you may be able to set up a bonding line.
A bonding line is a pre-arranged surety program that gives you approved bond capacity.
It usually includes:
Single job limit — the maximum size of one bonded project.
Aggregate limit — the total amount of bonded work you can have open at one time.
For example, a contractor may be approved for a $1,000,000 single job limit and a $3,000,000 aggregate limit. That means they may be able to bond one project up to $1,000,000 and multiple projects totaling up to $3,000,000, subject to underwriting approval.
A bonding line can make it much easier to bid regularly because the surety has already reviewed your company, financials, experience, and capacity.
How Much Do Bid, Performance and Payment Bonds Cost?
Surety bond rates vary based on the contractor, the project, the bond amount, credit, financial strength, and underwriting details.
For contractors who regularly perform bonded work and qualify for a bonding line, rates may be available on a sliding scale, often ranging from about 1.25% to 3% depending on the size of the project and the surety program.
For contractors who are newer to bonding, have limited financials, or have credit challenges, normal surety rates may range from about 2% to 4%, and sometimes higher depending on the situation.
As a simple example, if a performance and payment bond is rated at 2% on a $500,000 project, the estimated bond premium would be $10,000.
The best way to know your actual cost is to get a quote before you bid, so you can include the bond premium in your project pricing.
Why Contractors Should Get Bond-Ready Before Bidding
Waiting until the last minute can create problems. If the bid deadline is close and the surety still needs financials, job history, credit information, and project details, approval may be delayed.
Getting bond-ready early helps you:
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Bid faster
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Know your bonding limits
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Avoid surprises
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Build credibility with project owners
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Compete for larger jobs
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Qualify for better rates over time
Call Insurance Incorporated for a Surety Bond Quote
Whether you need a bid bond for an upcoming project, a performance and payment bond after being awarded a contract, or a full bonding line for ongoing bonded work, Insurance Incorporated can help. Call today for a quote 877-898-9333 option 2
Our goal is to help contractors find the lowest available surety rates they qualify for and make the process as simple as possible.
Call Insurance Incorporated today for a quote on Bid, Performance and Payment Bonds.
