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Why You Should Get a Contract Bond Line of Credit

A construction bond line can help you streamline the bidding process.

Smiling man in business suit and yellow hard hat holding an open folder at a construction site

When performing a contract, most commonly in public works projects, the project owner may request that the general or subcontractor post and maintain a performance and payment bond to guarantee the performance of work under the contract and payment to all labor and vendors.

Getting a surety bond can be a crucial and sometimes challenging process though. The underwriting process on contract bonds can sometimes require detailed financial information and therefore, can take some time for approval.

If working on bonded projects is something you’re interested in, you may want to consider getting pre-approved for a construction bond line.

Construction Bond Lines

A construction bond line refers to the bonding capacity a surety has pre-approved to provide you. The surety usually issues both a single limit amount and an aggregate amount.

The single limit amount is the maximum amount you can bid for a single project, whereas the aggregate amount is the combined amount of all active projects at one time.

Benefits of Getting Pre-Approved for a Contract Bond Line

Getting pre-approved for a bond line in construction can be extremely beneficial for your business for a few reasons, including:

  • Strengthens your bid offers: Being pre-approved demonstrates you’re financially stable and are capable of fulfilling the contractual obligations.
  • Makes the bidding process faster: Once your account is pre-approved, bid bonds, performance bonds, and payment bonds can often be issued on the same day.
  • Ensures you start projects on time: Having a pre-approved bonding capacity saves you time from any delays associated with bond approvals.
  • Makes business planning more strategic: It helps you determine how many bonded projects you could take on at any one point of time.

Applying for a Contract Bond Line

When applying for pre-approval of a construction bond line, contractors may choose either a standard contract account or a credit only program. Each has its own benefits, but one may be a better fit than the other depending on what your company needs.

Standard Contract Account Credit Only Program
Requires detailed financial information Requires review of company owner’s personal credit score
Bond limits are more than $1MM Bond limits are less than $1MM
Great for contractors bidding on larger projects Great for contractors looking to grow their bonded work

Standard Contract Account

A standard contract account requires detailed financial information (e.g., balance sheet, P&L, etc.) and can often require thorough analysis of a company’s financial strength. Standard accounts, though require more information, can offer a company larger bonding limits.

Bonding limits are determined by reviewing a company’s working capital and net worth. This program is well suited for contractors with detailed financial statements and looking to bid on larger projects and therefore need larger bonding capacity.

Credit Only Program

A credit only surety program works exactly as it sounds--it just requires a review of the company owner’s personal credit score to produce an approval. As long as credit is clean and acceptable, and no exclusions apply, a contractor can get access to bonding credit within minutes by only producing basic information. Since this program requires less information, the bonding limits are usually smaller than those seen in standard contract programs (<$1MM). This program streamlines the bonding process and gives access to a surety program without the major hurdles seen in a standard submission.

Credit only programs are great for smaller contractors looking to grow their bonded work and may not have the most sophisticated financial statements. These types of programs can be a great place to start for a contractor looking to have less than $1MM in open contract bonds at any one point in time.

Get Pre-Approved Today

Getting pre-approved for a contract bond line, whether it be a standard program or credit only program, is a great way to set your construction company up to bid on more public works projects and grow your business.

Reach out to one of our surety professionals to discuss your options and determine the best type of surety program for your company’s needs.