How Bonding Works for Contractors
Getting bonded opens the door to public works, federal contracts, and private institutional projects that require surety bonds. This guide walks you through the entire bonding process, from finding the right surety broker to building capacity for multi-million dollar projects.
The Bonding Process Step by Step
From your first conversation with a surety broker to completing bonded projects and growing your capacity. Here is how the process works in practice.
Find a Surety-Focused Broker
Not every insurance agent handles surety bonds effectively. Look for a broker with dedicated surety expertise and relationships with multiple sureties. A good surety broker understands construction financials, knows which sureties are right for your company profile, and can advocate for you during underwriting. This relationship is one of the most important business decisions a growing contractor makes.
Prepare Your Financial Package
The surety needs to evaluate your company's financial health. At minimum, prepare your last two to three years of tax returns, a current balance sheet and income statement, a work-in-progress schedule (WIP), a bank reference letter, and a resume of completed projects. Larger bond programs require CPA-reviewed or audited financial statements. The quality and organization of your financial package directly impacts approval speed and capacity.
Surety Underwriting and Pre-Qualification
The surety evaluates three factors: character (credit, references, reputation), capacity (experience, equipment, management team), and capital (working capital, net worth, liquidity). Based on this analysis, the surety establishes your bonding program: a single-job limit (the largest individual bond they will write) and an aggregate limit (total bonded work you can carry simultaneously). This pre-qualification typically takes 3 to 10 business days.
Identify a Project and Request a Bond
When you find a project requiring bonds, send the bid documents, contract, and bond forms to your broker. The surety reviews the project specifics against your capacity and current workload. For pre-qualified contractors, individual bond approvals are routine and often issued within 24 to 48 hours. New or complex projects may require additional review.
Bond Issuance and Submission
The surety issues the bond on its letterhead, signed by an attorney-in-fact with a power of attorney. You submit the bond with your bid (bid bonds) or with the executed contract (performance and payment bonds). The project owner verifies the surety is licensed in the project state and carries an A.M. Best rating of A- or better. Your broker handles the paperwork and ensures everything is properly executed.
Project Execution and Bond Continuation
During construction, the surety monitors your overall program through periodic financial updates, typically annual statements and quarterly WIP schedules. As you complete bonded projects, that capacity becomes available for new work. Successfully completing bonded projects builds your track record and increases your capacity over time. Most sureties perform annual reviews to adjust your bonding limits.
What Sureties Evaluate
Understanding what sureties look for helps you prepare and strengthens your application. These are the primary factors in every bonding decision.
Personal Credit Score
670+ preferred; below 600 limits options significantly. Sureties view personal credit as an indicator of financial responsibility.
Working Capital
The single most important financial metric. Working capital (current assets minus current liabilities) determines how much work you can finance simultaneously.
Net Worth
Total assets minus total liabilities. Sureties want to see positive and growing net worth as evidence of a healthy business trajectory.
Project Experience
Documented history of completing projects similar in size, scope, and complexity to what you want to bond. Experience from prior employment counts for new companies.
Banking Relationship
An established line of credit or banking relationship demonstrates financial stability and access to capital when needed.
Work in Progress
Your current backlog and completion percentages. Sureties track how much bonded work you are carrying versus your capacity limits.
Explore Bond Types
Bid Bonds
Get in the door on bonded projects
Performance Bonds
Project completion guarantee
Payment Bonds
Subcontractor payment protection
Related Educational Guides
Bid vs Performance
Side-by-side comparison
Bond Requirements
What bonds you need by project type
Public vs Private
Bonding by project ownership
State Contractor Bonds
Bonding Process FAQ
How does bonding work for contractors?
Contractor bonding works through a three-party agreement. You (the contractor/principal) obtain a surety bond from a surety company (the guarantor). The bond protects the project owner (the obligee). If you fail to perform, the surety pays the owner and then seeks reimbursement from you. To get bonded, you work with a surety broker, submit financial documents, get pre-qualified for a bonding capacity, and then request individual bonds for specific projects.
How long does it take to get bonded for the first time?
Initial surety qualification typically takes 3 to 10 business days once the surety has your complete financial package. The timeline depends on how organized your documents are, the complexity of your business, and the bond amount you need. Smaller programs with simple financials can be approved in 3 to 5 days. Larger programs requiring CPA-reviewed statements take longer. Once established, individual bonds are issued in 24 to 48 hours.
What affects my bonding capacity?
Working capital is the primary driver. A common rule of thumb is that your bonding capacity is roughly 10 to 20 times your working capital, though this varies by surety and contractor profile. Net worth, credit score, project experience, and management depth also factor in. A contractor with $500,000 in working capital might qualify for a $5M to $10M aggregate bonding program. Growing your balance sheet is the most effective way to increase capacity.
Can new contractors get bonded?
Yes. Sureties evaluate the contractor's personal financial strength, credit history, and industry experience, even if the company itself is new. Many sureties have emerging contractor programs specifically designed for startups. Initial capacity will be limited, often $100,000 to $500,000 per job. As you complete bonded projects successfully, capacity grows. Starting small and building a track record is the proven path to larger bonding programs.
What is the difference between a bond and insurance?
The key difference is who pays in the end. With insurance, the carrier pays the claim and absorbs the loss. With a surety bond, the surety pays the claim to the obligee (project owner) and then pursues you for full reimbursement under your indemnity agreement. A bond is a financial guarantee backed by your personal and business assets. Insurance transfers risk. Bonding extends credit. This distinction is why sureties underwrite your financials so carefully.
Do I need a personal guarantee to get bonded?
Almost always, yes. Surety companies require personal indemnity agreements from the contractor's owners and their spouses. This means your personal assets are on the line if a bond claim is paid. Personal indemnity is not optional; it is a fundamental requirement of the surety bond structure. This personal exposure is what motivates careful project management and financial discipline. It is also why sureties evaluate personal credit and net worth.
Ready to Get Bonded? Start Here.
Whether you are a new contractor getting bonded for the first time or an established company looking to expand capacity, our surety specialists guide you through every step.