How Construction Bonds Work Part 3
As Bradenton contractor lawyers, we are well aware of the risks involved in the construction industry. Many constructions firms fail due to labor shortages, material shortages, and economic downturns. These all play a role in whether or not some projects will be completed. Project owners cannot afford to go bankrupt if a project is not completed. Securing a construction bond is one of the ways they can ensure they are protected from the impact of contractor default.
Sections one and two discussed the most frequently used bonds, why contractors struggle to get bonded, and the importance of financial strength. This section will conclude our three-part series and focus on the misconceptions surrounding construction bonds and more.
Disproving the Misconceptions
When it comes to construction legalities, misconceptions are not far behind. Surety bonds can get a bit confusing, but we will provide some facts to lessen the confusion.
Surety bonds, bail bonds, and insurance are not the same: Insurance protects the purchaser and surety bonds do not. They protect the person (the project owner) who requires the bond. While bail bonds are a type of surety bond, they don’t apply here.
You don’t pay the full amount of the bond: You only pay a percentage. Unless you are financing a surety bond, you don’t make monthly payments. Seek a quote from a reputable surety company.
Bad credit will not disqualify you: There are bad credit options available for contractors.
Don’t Despise Small Beginnings, Leverage Them
Bonds are for your protection. This is why increasing your capacity for higher bonds takes time. Larger bonds are built on a foundation of smaller and steady projects as well as a good relationship with your surety. The key is to complete every job properly, on time, and work diligently to avoid claims. If you are not qualified to work on a larger project, resist bidding because you will run into problems during the operation. Once your track record and financials are strong, you can bid on larger projects and the surety will likely extend higher bonds to you.
How to Increase Your Approval Rate
The bonding process can be rigorous but contractors can put themselves in a more favorable position by submitting clear, complete, and accurate financial statements and other relevant documents. It is also critical to demonstrate that your financial situation is strong (working capital, net worth, and profitability). Stay in contact with the surety company and keep them abreast of your work progress.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.