Alamo Surety Bonds

 Understanding Bonding Capacity in a Soft Market
By Jim Swindle | Wednesday, January 31, 2018
Surety
   Fueled by a recovering economy and a construction boom, more sureties are entering the bond market. As a result, available surety capacity is at an all-time high and underwriting remains relatively soft. There is unprecedented competition among bond companies largely driven by their agents, who work on a commission-basis.
EXPRESS BOND PROGRAMS
In the past, traditional surety underwriting required contractors to be well-established, experienced and provide all of the underwriting paperwork (such as financial statements, work in progress schedules, prior contract references and bank references) even for relatively small bonds. Many small and emerging contractors were faced with a classic Catch-22: They couldn’t get bonds because they lacked experience and had insufficient financial strength. Yet without bonds, they could not obtain the larger, bonded contracts that they needed in order to gain the experience and capital base bond underwriters want to see.
Today, almost every surety market offers an “express,” or credit score-based program for small bonds. While program limits and underwriting criteria vary slightly by surety, all of these programs are designed to allow contractors to bond single jobs in the $200,000 to $450,000 range with a simple one-page application. This enables a contractor to obtain bonds without having to provide financial statements or any of the other underwriting paperwork, which can seem quite cumbersome for a small contractor. While there are some restrictions (e.g., no environmental projects), if a contractor’s personal credit score is acceptable, it can be approved relatively quickly. Even the SBA Bond Program now offers a “Quick Bond” Program up to $400,000 with a simplified SBA Form and no financials required. These express bond programs have been a huge game- changer, empowering small contractors to grow their businesses much faster than ever before. But there are down sides to these programs that can adversely affect a contractor’s bond ability.