A surety bond is a financial guarantee. For a surety company to accept the risk of providing this financial guarantee, it must undergo an underwriting process to determine the risk level of the principal who needs the contract bond.

Below we define commonly requested underwriting information and address why a surety company may ask for each piece.

Contract Bond Underwriting Requirements

1. Contractor Questionnaire

The contractor questionnaire offers basic information about the contractor, such as:

  • How long they’ve been in business
  • Ownership details
  • The scope of work
  • Their largest jobs to date

Most importantly, it gives the surety the ability to pull the owner’s personal credit.

2. Bid Specs and Contract

A contract is essential because it’s the basis of the surety’s guarantee. The surety will essentially guarantee the contractor’s work, so the surety company must ensure it’s comfortable with the agreement.

3. Year-End Business Financial Statements

These financial statements provide vital financial ratios and indicators about where a company stands today and its history. A surety company will specifically look at:

  • Debt/worth
  • Working capital
  • Net worth
  • Profitability record
  • Margins

If a CPA provides a compilation, review, or audited statement for you, it can boost the credibility of the statements.

4. Interim Business Financial Statement

Year-end business financial statements accurately indicate where the company was at the year-end date. However, they’re not usually the most up-to-date statements.

Interim statements offer a snapshot of where a company has been more recently. A surety company can pull similar financial information from interim statements as year-end statements.

5. Accounts Receivable or Accounts Payable Schedule

In the contract bond writing process, schedules may indicate how timely you receive wages and pay your suppliers. If your receivables have been hanging out there for more than 90 days, you will need to address the issue.

6. Work-in-Process or Work-on-Hand Schedule

This schedule gives a surety company insight into all the jobs you have under contract currently. The schedule will look at:

  • The cost to complete
  • Unearned gross margin
  • Under/over billings
  • Profit fade

A work-in-process or work-on-hand schedule is the best way for a surety to analyze your future success.

7. Personal Financial Statement

A personal financial statement shows the owner’s ability to assist the company if that company needs additional capital to complete a project. It is also an indication of past success.

8. Bank Reference

A bank reference will assure the surety that the contractor has handled all accounts with the bank as agreed upon. It will also indicate current amounts in different accounts.

9. Job References

Job references should include contact information from previous jobs similar in scope or size to the project at hand. The surety will then contact the listed individuals to discuss the quality and timeliness of work completed.

Choosing ZipBonds for Contract Bond Underwriting

All this information is used for different reasons and gives the surety great insight into your company. The surety company will then be prepared to evaluate the risk at hand and decide the best course of action for the parties involved.

If you have questions about any of this information or surety bonds in general, feel free to reach out to the experts at ZipBonds for help.

Contact ZipBonds anytime for online support or to talk with an agent directly.

2 thoughts on “Contract Bond Underwriting 101: What Do Underwriters Need?

  1. Pingback: Surety Bond Qualification for Bid, Performance, & Payment Bonds - ZipBonds

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