How to Get a Surety Bond in the Construction Industry

The phone rings. You’ve just been invited to bid on a project worth twice what you’ve ever handled before. There’s just one catch: You need a surety bond. For many contractors, this moment arrives sooner or later, whether pursuing government contracts, larger commercial projects or simply meeting state licensing requirements. Understanding how to secure bonding can mean the difference between watching opportunities pass by and growing your construction business. 

What Construction Bonds Actually Do 

A surety bond connects you as the contractor with a surety company and the entity requiring the bond. Think of it as a financial safety net that gives project owners confidence you’ll complete the work as promised. When you obtain a bond, the surety company reviews your financials and agrees to cover losses if you can’t fulfill your obligations. You remain responsible for reimbursing the surety for any claims paid. 

Different bonds serve different purposes throughout a project: 

• Bid bonds show you’re serious about a project and have the financial backing to move forward if selected.  

• Performance bonds guarantee you’ll complete the work according to contract terms. 

• Payment bonds ensure your subcontractors and suppliers get paid.  

• Maintenance bonds protect against defects after project completion. 

Federal law requires contractors to furnish both performance and payment bonds for any government construction contract exceeding $100,000. Most state and local governments have adopted similar requirements for public works projects. Private owners increasingly ask for bonds too, viewing them as protection against contractor default and a way to identify financially stable partners. 

Why Your Financial House Needs to Be in Order 

Getting bonded means opening your books. Surety underwriters dig deep into your financial health before agreeing to back you. They examine your balance sheet, income statements and cash flow. They review how you manage current projects through work in progress reports. They check your credit history and look at how you’ve handled past obligations. 

This scrutiny focuses on what the surety industry calls character, capacity and capital. Underwriters want to see you have a track record of completing projects successfully and treating business partners fairly. They need evidence you possess the experience and resources to handle the work you’re seeking to bond. They verify your financial strength can support the project demands without stretching you too thin. 

Most contractors with solid credit scores above 700 and well-organized financials move through underwriting fairly smoothly. Problems arise when financial statements lack clarity, when work in progress schedules show consistent overruns or underbilling, or when credit reports reveal late payments and unresolved debts. Having a CPA familiar with construction accounting prepare your financial statements makes a real difference in how underwriters view your application. 

The Actual Steps to Get Bonded 

Start by identifying what type of bond you need and the required amount. Review contract documents carefully or check your state’s licensing requirements. Understanding these details upfront prevents delays and confusion later. 

Next, find a surety agent who specializes in construction bonds. Not all insurance agents understand contract surety, so look for someone with deep experience in your trade. A good agent does more than push paperwork. They help you understand what underwriters need to see, prepare your submission properly and build relationships with multiple surety companies. This becomes especially valuable as your bonding needs grow. 

Gather your documentation before applying. You’ll need financial statements from the past two years at minimum. Have your business formation documents ready along with resumes for key personnel. Prepare a work in progress schedule showing current projects, costs incurred, billing status and projected completion. If you’re seeking a bond for a specific project, put together details about the scope, timeline, contract amount and how it compares to work you’ve completed successfully. 

The underwriting process takes time. Underwriters review everything you submit and often have follow-up questions. They may want to speak with you directly about your experience, your approach to project management or how you plan to handle specific contract requirements. Smaller bonds with straightforward applications might get approved within days. Larger bonds or first-time applications can take weeks. 

When underwriting concludes, you receive a quote showing your premium rate. This typically falls between 1% and 3% of the bond amount, though rates vary based on your credit, experience and the specific bond requirements. After accepting the quote and paying the premium, the surety issues your bond to file with the obligee. 

Build Your Bonding Capacity Over Time 

Surety companies assign you a bonding capacity similar to a credit limit. This includes a single project limit and an aggregate limit across all bonded projects. New contractors typically start with modest limits, perhaps for projects under $400,000. As you complete projects successfully and maintain strong financials, your capacity increases. 

This growth doesn’t happen automatically. You need to stay in communication with your surety, sharing financial updates regularly and notifying them of significant business changes. When you complete a project profitably and on schedule, make sure your surety knows. When you’re considering moving into a new geographic market or type of work, discuss it with them first. This ongoing relationship builds trust and opens doors to larger opportunities. 

Some contractors find their capacity constrained not by their surety’s willingness but by their own financial limitations. Working capital determines how much work you can handle simultaneously. Improving your financial position through better project management, tighter cost controls and stronger cash flow management directly translates to higher bonding capacity. 

How Small Businesses Can Access Bonding Support 

The SBA Surety Bond Guarantee Program provides a pathway for contractors who struggle to obtain bonds through standard commercial channels. The program guarantees bonds for small businesses in construction, manufacturing, service and supply industries. In fiscal year 2024, the program guaranteed more than $9.2 billion in bonds, supporting over 2,000 small businesses and more than 46,000 jobs. 

Your business must qualify as small under SBA size standards and meet the participating surety company’s requirements for credit, capacity and character. Even with SBA backing, surety companies still underwrite these bonds carefully. The guarantee simply gives them more confidence to work with emerging contractors who show promise but lack extensive track records or deep financial reserves. 

Your Partner for Construction Financial Success 

Getting bonded opens doors, but maintaining bonding capacity requires ongoing financial discipline and clear reporting. Construction accounting differs significantly from other industries because of how costs drive revenue recognition and how project-based work affects cash flow. Many contractors find that working with accounting professionals who understand construction-specific challenges makes managing growth and bonding relationships much smoother. 

Your financial statements tell the story of your business to surety underwriters. When those statements reflect solid management, appropriate job costing, healthy working capital and consistent profitability, bonding becomes easier. When they show confusion, poor cost tracking or cash flow problems, bonding becomes difficult or impossible. 

Building a construction business that can access bonding for larger projects requires attention to financial fundamentals from day one. Track costs carefully on every project. Bill appropriately and avoid getting too far ahead or behind on billing. Manage cash flow actively rather than waiting for problems to emerge. Keep your financial reporting current and accurate. 

Whether you’re pursuing your first bond or looking to increase your capacity for bigger projects, having strong financial systems and clear reporting makes the process work. Contact a James Moore professional to discuss how specialized construction accounting support can strengthen your financial position and help you access the bonding you need to grow your business. 

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.