Bonding Capacity Improvement for Contractors

Bonding Capacity Improvement for Contractors

Increasing your bonding capacity is essential for contractors looking to take on larger projects. It’s a rating that represents the maximum amount of credit a surety company will extend to a contractor. It can also be a reflection of financial strength and stability, indicating your company’s readiness to handle larger projects.

Bonding capacity is determined based on factors including:

  • Business financial history 
  • Credit score
  • Available credit
  • Project references

Here are eight actionable steps to build your bonding capacity and position your contracting business for growth.

1. Utilize Personal Assets

Use personal assets, such as high net worth or major equity holdings, to boost your bonding capacity. Some surety companies accept personal assets as collateral, enhancing your financial profile and demonstrating commitment to project success. Just be careful how much you leverage your personal wealth to support your business.

2. Reinvest Profits

Reinvesting profits into your business strengthens your company’s financial health and balance sheet. Reallocating your earnings into asset acquisition and business growth enhances your equity position and improves your bonding capabilities. 

3. Avoid Purchasing Fixed Assets

Opt for renting or leasing equipment instead of outright purchasing to conserve cash flow and limit your liabilities. Limiting fixed asset acquisitions helps maintain working capital and can strengthen your financial position in many cases.

4. Pursue Niche Jobs

Focus on projects within your area of expertise to showcase your capabilities and build credibility. Taking on jobs that fit your specialized knowledge and experience will help you complete them on time and within budget, demonstrating your reliability to customers and surety companies, alike.

5. Explore SBA Programs

Investigate Small Business Administration (SBA) bond programs tailored for contractors. SBA programs can support your business expansion efforts and help you better understand the specific steps you need to take to increase your company’s bonding capacity – and capacity for new projects.

6. Work With Bonded Subcontractors

Consider bonding subcontractors to alleviate risks associated with project default or non-payment. Bonded subcontractors enhance project security and enable you to take on larger contracts.

7. Invest in Financial Representation

Hire financial professionals to manage cash flow and optimize profitability. The team at Equify Financial includes experts who can help guide our partners’ businesses through financial reporting and increasing bonding capacity. We understand the intricacies of the construction industry and can recommend strategic financing moves to improve your capacity to take on new projects. 

8. Maintain Clear Cash Flow Statements

Keep detailed cash flow statements to demonstrate financial stability and debt-paying capabilities. Clear cash flow documentation enhances investor confidence.

By implementing these actionable strategies, you can improve your financial profile, demonstrate reliability, and position your contracting business for success in the competitive construction industry.

Don’t Wait to Take Action to Improve Your Bonding Capacity

Increasing your bonding capacity requires a strategic approach and proactive financial management. If you need help finding the best financial solutions for your contracting business, reach out to your local structured finance representative. We’re here to support your business goals and help you navigate the complexities of bonding and financial management.