Most large projects require bonds to back up your work. When your business starts to do really well and bid on more contracts, you need to be able to handle all the bond requests. As a contractor, you are going to eventually hit a construction bond limit or construction bond capacity.
#1 Construction Bonding Capacity
This limit on the value of a bond you can get for a single project and there is also a limit on the total number of bonds you can carry at one time. If you are really pushing to increase your business, you need to make sure that you can get the bonds to back up your bids.
#2 How single Bond Limits Are Determined
When you apply for a single bond for a contract job, what happens is the insurance company generally takes a look at your personal credit score. Then they determine based up on that the rate of bonds that you qualify for. If you have a high credit score, you are more likely to be approved for a construction bond and more likely to secure a favorable rate. The lower your credit score, the more issues you are going to run into securing a construction bond.
#3 How Multiple Bond Limit Is Determined
If you apply for more than one bond at a time, the insurance company is going to look beyond your personal credit score and really examine your business. They are going to examine the cash flow coming in and out of your business. They are going to look at how much business you do, how many projects you have completed and how many projects you have lined up for the future.
They are going to also look at the experience that you and your team bring to the crew as well as what equipment you have to complete the jobs you are applying for.
Your track record as a business matters a lot more when you want to secure multiple bonds. Insurance companies will cap the number of bonds you can have active at one time based on your business success and failures. This includes how many bonds you have defaulted on or honored.
If you need to pursue multiple bonds for your business, it is a smart idea to hire a professional construction CPA to get your finances in order for. Also, you are going to want to work with your accountant to switch to a percentage of completion accounting method. This is a very detailed accounting method and will provide you with the best numbers to convince the insurance company to issue you multiple bonds at the same time.
Contact a company that can supply contractor bond services for more information and assistance.