It’s not always easy for small business owners and operators to obtain bonding. This may be due to fiscal restrictions, credit, or a lack of experience. Below, we cover our top 5 effective surety bond solutions to help small businesses and those with less-than-ideal credit secure the surety bonds they need.
We’ve worked hard to establish relationships with our surety bond carriers to offer practical solutions for our clients. We hope to make bonds more accessible for your business, no matter your situation.
Surety Bond Solutions for Small Businesses and Credit Challenges
1. Collateral
One way for a small business to secure a surety bond is by offering collateral. This can include cash, an irrevocable letter of credit (ILOC), or free and clear real estate. Cash and ILOC are the most accepted forms, as sureties often shy away from real estate due to the complexities involved in selling it (if it comes to that).
Collateral is generally held for the duration of the contract, providing the surety with a safeguard in case the business cannot fulfill its obligations.
2. Co-Signors
Like with a loan, working with a co-signer can be a valuable option for small businesses with solid experience but limited financial resources. A co-signer adds an extra layer of security, making securing the bond or financing you need more accessible. This approach can enhance your credibility and improve your chances of approval, even if your financial situation could be better.
It’s most effective to choose a co-signer who is either experienced in your industry or has a personal connection to your business, such as a parent, relative, or long-time friend.
3. Funds Control
Funds control can be an excellent option for businesses that need an extra layer of financial oversight. In this arrangement, a third party—such as a funds control agent—manages the flow of funds on the project. This ensures that the money is used appropriately, reducing the risk for both the contractor and the surety.
For small businesses or contractors with a less-than-ideal financial history, funds control can be instrumental in securing a bond that might otherwise be out of reach.
4. Small Business Administration (SBA)
The SBA Surety Bond Guarantee (SBG) Program is specifically designed to help small businesses get bonded, especially those that lack the financial assets or experience to do so through traditional means. The underwriting is also a little different through the SBA, so a “bad” risk going the traditional bonding route may be a good risk through the SBA (and vice versa). The SBA guarantees a portion of the bond, making it less risky for sureties to issue bonds to these businesses.
ZipBonds is an SBA-preferred bond provider. Contact us to learn more about this opportunity or to secure a bond!
5. Breaking Down the Contract
In some cases, a large project may be broken down into smaller contracts to make bonding more feasible. This strategy works best when the contract can be logically divided into smaller tasks.
- For example, if a small business is contracted to supply products to multiple retail locations, the contract could be divided into separate agreements for each location.
This approach allows the business to manage each contract individually, making it easier to obtain bonding or financing for smaller, more manageable portions of the project. However, suppose the contract involves supplying a single large order to one location. In that case, it may not be feasible to break it into smaller parts, as the contract is tied to one specific delivery.
Bonus: A Mixture of Any of These
Sometimes, the best approach involves combining several strategies. For instance, a small business might use collateral and a co-signer to secure a bond, or they might take advantage of the SBA program while implementing funds control. By customizing a solution that fits your unique situation, you can overcome financial or credit challenges and secure the bonding or financing you need to grow your business.
ZipBonds Solutions for Small Businesses
At ZipBonds, we work hard to find surety bond solutions that end in “yes.” We will look at a tough situation and think of it as “how do we get this done?” vs. giving our clients an immediate no.
Reach out to ZipBonds any time to speak with an agent. We’d love to talk with you to find the best solution for your bonding needs!
- support@zipbonds.com
- (888) 435-4191