Surety bond underwriting involves the pre-approval and evaluation of two primary performance requirements. These requirements, determined by the principals, are assessed to evaluate their risk level. The underwriting process encompasses a variety of concerns. Here are 10 key underwriting concerns you should be aware of:
- Job Profitability
Reflects a contractor’s ability to estimate accurately and manage projects effectively. - Overhead Expenses
The operational costs that impact the financial health of a project. - Experience and Track Record
A history of successfully completed projects adds credibility. - Geographic Familiarity
Knowledge of local markets and environmental conditions. - Debt-to-Worth Ratio
Measures the financial stability of a business. - Bank Line Usage
Surety companies prefer to see availability rather than full utilization of credit lines. - Outstanding Tax Liens
Surety companies generally require a payment plan to be in place. - Pending Lawsuits or Disputes
Legal issues can indicate potential risks. - Underbillings
Concerns arise with underbillings due to unapproved change orders, which may indicate a “profit fade” or loss on a job. Underbillings due to timing are typically not a concern. - Overbillings
While generally positive, high overbillings paired with a low cash balance can signal borrowing against the project and cash flow issues.
It is crucial to address these concerns before proceeding with the underwriting process of a surety bond to avoid potential issues. Working with an experienced Surety Broker who understands how to navigate these concerns with underwriters is essential. As a specialized agency focused exclusively on surety bonds, and with decades of bonding experience, contact Construction Bonding Specialists to explore bonding solutions for all types of cases, from standard to challenging.
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At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a dedicated surety-bond-only agency with decades of bonding experience, we strive to discover surety solutions for all types of cases, ranging from routine to challenging. Contact us online or call us at 248-349-6227 to learn more.
Written by the digital marketing team at Creative Programs & Systems: www.cpsmi.com