Finance & Bonding Relationship - Pt. 2

1. Relationship BetweenBonding & Finance Part II What Bonding Companies Seek in aBalance Sheet

What else determines bonding programs?

List of jobs on hand.

The year in perspective.

Spectrum of jobs performed and anticipated for the year; those from the previous year; contract value of each job; length of each job.

Does the company average jobs of $200,000-$300,000 but occasionally garner projects of $1.5 million?

Is there a large job thats scheduled to commence in a couple of months?

Bonding companies seek a 3:1 debt ratio on the balance sheet.

Whatever you can do to decrease your debt will improve your ratio.

You, an investor or partner can inject equity capital.

Pay off a term loan.

Restructure existing loans.

Bonding companies can tailor the bonding program to fit the balance sheet. If only some of your projects are bonded, the tailored bonding program may meet your needs.

Difficulty in obtaining bonds?

SBA-guaranteed bonds.

Similar concept to SBA loans.

3 rdparty indemnities.

These can be provided by the seller if you are buying another construction company, by an investor, or by a joint venture or other partner.

Bonding companies prefer reviewed financials & love audited financials.

With reviewed financials, the bonding company can be certain that the financials presented to them are accurate and reflective of the companys true condition.

For a long-term customer, may take CPA-compiled statements.

However, when that customer seeks more steady bonding or presents a weaker balance sheet, the bonding company will want reviewed financials.

Why audited or reviewed statements?

With Quickbooks only data, a companys owner or CFO may add false data, delete information, or manipulate timing to make statements look better.

CFO, owner, et al may make mistakes with generally accepted accounting principles (GAAP).

Need credibleexternalsource (CPA) reviewing the information. CPAs and their accounting activities are regulated.

Outright fraud is always illegal but can be difficult to prove unless glaring.

Most bonding companies like personal guarantees.

Or other guarantees to 100% of the bond.

Remember, bonding is NOT insurance.

Bonding, less a risk product than a finance product.

Bondings purpose - to ensure the project continues smoothly with minimal hiccups.

In rare instance bond must pay, bonding company expectsfullreimbursement of their payouts.

In general practice, if the bond company must pay out:

To the extent that it was their customers fault through overt negligence or fraud, the bond company will pursuefullrepayment.

To the extent that it was not their customers fault AND the customer helps them as much as possible to mitigate the payouts, the bond company will pursue onlypartialrepayment.

Additional Information:

Solving the CapitalEquation:

Financing Solutions for Small Businesses

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Finance & Bonding Relationship - Pt. 2

Economy & Finance

Transcript of Finance & Bonding Relationship - Pt. 2