Three Ways For Contractors And Subs To Obtain Bonding

While the current U.S. economic recovery has expanded opportunities for construction contractors and their subs to get more private sector work, many of these firms also want to add public sector work to their project mix to insulate themselves from the cyclical nature of the construction industry.  However, public sector projects typically require GCs, primes and subs to be bonded, which can be a challenge.

Qualifying for a bond has specific liquidity requirements – typically, working capital of a total of 10% of the job on hand plus a small credit line to provide cash reserves for unexpected emergencies.  Yet, contractors and their subs lacking such liquidity still may have options to obtain bonding necessary for these projects.

Besides tapping into home equity or borrowing from family or friends, here are three ways to qualify for bonding and win more jobs:

1. Get help from the Small Business Administration (SBA). Contractors may seek to access the SBA’s Surety Bond Guarantee program (SBG) or encourage any subs having difficulty with bonding to do so.  Little known rules permit a contractor with a newly incorporated business – but whose ownership has prior related work experience – to participate.  An experienced bonding agent specialist, such as Unique Surety and Insurance Services – designated as “an SBA admitted agent” – can help small, medium or large contractors navigate the application process.

2. Explore specialized hedge funds. A growing number of specialized hedge funds are willing to put up equity capital that provides contractors with the financial resources they need to qualify for bonding.  These firms are typically aligned with leading national bonding agents that represent several surety bond carriers offering bid, performance, payment and maintenance bonds for the construction industry.

3. Establish joint ventures. Some contractors have strengthened their financial statements and established adequate reserves by forming joint ventures with complementary businesses or even rival contractors.  Their combined statements and cash may enable them to qualify for bonding.  They can then share expenses and split the profits from projects for which they otherwise might not have qualified.

By checking these alternatives contractors and their subs that didn’t have required liquidity may qualify for necessary bonding, diversity their project mix and insulate their business from market cycles.