Building Bonding Capacity From an Underwriter’s Perspective

The bonding industry has its own version of “The 3 Cs.” These common questions can help contractors grow their bonding programs.
By Edin Zukanovic
February 1, 2022

If you’ve ever applied for a bank loan, or even purchased a nice piece of a jewelry from a jeweler, you’ve probably heard of “The 3 Cs." The bonding industry also has its own version of “The 3 Cs." They’re not cut, carats or clarity, and answers to the following common questions may help contractors with growing their bonding programs.


Character, as defined by Oxford Languages, is “the mental and moral qualities distinctive to an individual.”

From a surety perspective, character is a combination of your personal history, personal credit and the company’s reputation in the community you serve.

Q: What else do underwriters look for when considering character?

A: Assessing character is difficult to quantify. Surety companies review personal and corporate credit reports, and those credit scores provide some insight on bill-paying habits. Surety companies also look at resumes of business owners, including their educational background, military service, involvement in industry associations and engagement in their broader community.

Q: What would you define as a character concern?

A: Red flag character concerns could include prior felony convictions, disbarments or prior bankruptcies. Poor credit scores often suggest delinquencies with creditors or a pattern of not paying bills in a timely fashion.

Q: What do surety companies like to see from a contractor that may not have perfect credit, or has a less-than-desirable personal history?

A: Lower credit scores or a checkered past often have a story attached to it. We typically try to give contractors with imperfect credit or personal history the benefit of the doubt by putting more weight on recent conduct versus past conduct. At the end of the day, how a surety evaluates character is a judgment call. Each situation is unique and needs to be evaluated in that context.


When underwriting capacity, bond companies typically like to support contractors that have performed similar work in the past. The rule of thumb is that bond companies will consider bond requests that are 1.5 to two times the contractor’s largest completed project.

Q: What if the contractor is brand new and has no job history?

A: Start-up construction companies present a unique risk profile with no track record of performance and often limited resources. A surety might consider the prior experience of the business owner, while also looking at the size and complexity of the project in question. An applicant is likely to get more traction with small projects and bonds at the outset, and work their way up to larger contracts incrementally over time.

Q: What if the job is more than two times the contractor’s largest completed project? What else would a surety company want to know to get comfortable with their capabilities?

A: The two-times guideline is just that: a guideline. It’s one data point of many that a surety considers. The surety is trying to measure risk, and once an individual project approaches that two-times level, surety companies are expecting some additional risk to enter the underwriting equation. A surety might ask the contractor how they intend to manage the risks associated with a larger project. This is an area where a strong partnership between the agent, account and surety becomes more critical. Oftentimes, that’s illustrated by the ability to have a productive conversation about why this specific opportunity is right for the client.


The third and final C, capital, is the financial resources contractors bring to their desired bond program. While a bond company may be able to overcome a jump in job size or a personal credit issue, the ability to cash flow and manage a project makes this C the most critical.

Q: What does an underwriter like to see from a capital standpoint to support a bond program?

A: Surety underwriters are typically very comfortable talking in dollar terms. How much working capital and how much equity does a company have? What are revenues and profits. There’s no one-size-fits-all answer when it comes to measuring those values against a certain bond program. The old rule of thumb was a “10% case,” or a bond program equal to 10-times working capital. Such a notion is just too simplistic in today’s environment, and doesn’t allow for the many qualitative variables that sureties consider.

Q: If a contractor is light on the desired working capital, what can a contractor do to increase capacity in the short term?

A: Often the surety is making a judgment call about whether or not the company has adequate working capital to finance the project in question, along with all other contracts on hand. If the answer is ”not in our opinion,” there may be other sources of capital available to the construction company that haven’t yet been explored. Another option is to consider the U.S. Small Business Administration (SBA) bond guarantee program. The SBA may have more latitude in how they calculate working capital and might be able to provide greater surety capacity to the right applicant.

Q: What can a contractor do in the long term to build a bonding program?

A: Often, sureties are most interested in working with clients that are seeking a meaningful partnership. Clients should assemble a strong team of advisors, including the surety agent, surety company, construction-oriented CPA and attorney. Plus, they should build a strong balance sheet through earning and retaining profits in the business, and show consistent and measurable success as project sizes and revenues grow.

A healthy relationship between the contractor, the bond broker and the surety underwriter is vital to helping establish or grow bonding capacity. Be prepared to answer detailed questions and subject the company to a little more scrutiny than it may be used to. However, communicating with the agent and the surety can be incredibly helpful toward building your bonding capacity.

by Edin Zukanovic
Edin Zukanovic has 15 years of experience working with contractors of all sizes for their surety bonding needs. He was recognized as one of the Top 5 Outstanding SBA agents in the country in 2020. District Bonding, LLC is an independently owned surety bond-only agency in Leesburg, Va. 

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