How to Be Qualified for a Surety Bond

By Christa Titus

  • Overview

    A surety bond, also known as a performance bond, is issued for a business to verify that the company will fulfill an obligation to a third party; if that obligation isn't met, the bond ensures that the third party will recover its loss. Qualifying for this bond goes far beyond looking good on the paperwork. Because these bonds are based on a performance guarantee, the bonding companies thoroughly examine how you conduct your business. You must prove that you are financially stable, that you have established longevity, that you operate with integrity and that your business plan reflects a reasonable route for expansion to meet the criteria for the bond.
    • Step 1

      Review your credit report with all three credit reporting agencies (Equifax, Trans Union and Experian). This is a major element in being approved, so you want to make sure your credit history is accurately recorded and that any derogatory information that can be removed is cleared from the record before applying for the bond.
    • Step 2

      Take stock of your history with your bank, your vendors and your subcontractors. The lender will consult them to see how you conduct your business. This is the time to ask for references or to see if you need to do fence-mending in your relationships.

    • Step 3

      Get your financial statements and other paperwork organized. Lenders want to see that you keep clear records and that your accounting practices are sound. Hire a certified public accountant to handle your records.
    • Step 4

      Make sure you can demonstrate that your company has integrity and is respected. How you manage your affairs will fall under heavy scrutiny. Your employees and customers are among those that the investor will evaluate to get a feel for how your business is run.
    • Step 5

      Compile evidence to show that if you sell the company or die while it's under your ownership, the business has a strong foundation. The bond issuer wants to see that the company it is lending to has established longevity in its field and seems a solid proposition for investment. They will consider such things as how much employee turnover you have and how long your management team has been in place.
    • Skill: Challenging

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