When working with a surety bond provider, you’ll likely encounter the term “full financials.” The concept comes into play during the bond application process. 

But what does it mean? Why would your surety ask for it, and why should it matter? We put this guide together to answer all the questions we frequently get on the topic.

What are surety bonds?

Before delving into the concept of “full financials,” let’s briefly recap what surety bonds are. A surety bond is a three-party contract that guarantees the performance or fulfillment of a specific obligation. The three parties involved are:

  • The principal (the party who needs the bond), 
  • The obligee (the party who requires the bond), and
  • The surety company (the entity providing the bond).

Surety companies act as a financial backstop, ensuring the principal fulfills their obligations to the obligee. The surety assesses the risk associated with issuing a bond by evaluating the principal’s financial strength, credibility, and track record. To perform this evaluation, they often request full financials.

What are full financials?

“Full financials” refer to comprehensive financial documentation that provides a detailed overview of a person’s (or business’s) financial position. These documents allow a surety to assess a bond applicant’s financial health, stability, and capacity to fulfill the obligations outlined in a bond contract.

Typically, when a surety company asks for “full financials,” they seek financial statements and supporting documents that offer a holistic view of the principal’s financial standing. The exact requirements may vary based on the following:

  • Nature of the bond
  • Project size
  • Surety company’s internal policies 

However, four components are commonly included in full financials. 

1. Balance Sheet 

A balance sheet outlines the principal’s assets, liabilities, and equity at a specific point in time. It provides insights into the entity’s financial position, liquidity, and leverage.

2. Income Statement 

An income statement (or profit and loss statement) showcases the principal’s revenue, expenses, and profitability over a defined period. It helps assess the applicant’s ability to generate consistent income and manage costs effectively.

3. Personal Financial Statements

This outlines the owners’ assets, liabilities, and equity. The owners behind each company typically provide a financial backstop in case the company falls on hard times.

4. Supporting Documents

In addition to the financial statements, surety companies may request supplementary documents such as tax returns, bank statements, accounts receivable/payable reports, project contracts, and any other relevant financial information.

Why are full financials necessary?

Surety companies scrutinize full financials to evaluate the principal’s financial capacity to complete a bonded project or meet their obligations. By analyzing these documents, they assess several key factors:

  • Financial stability: Surety companies examine the principal’s financial statements to gauge their stability and ability to handle financial commitments. A strong financial position instills confidence that the principal can meet their bond obligations.
  • Liquidity: Liquidity is the principal’s ability to access cash or assets that can be quickly converted into cash. Sureties assess liquidity to ensure the principal has sufficient working capital to address unexpected challenges during the bonded project.
  • Debt and leverage: Surety companies analyze the principal’s debt levels and leverage ratios to determine if they are operating within reasonable limits. Excessive debt and high leverage can indicate financial strain, potentially affecting the principal’s ability to perform.
  • Profitability: Evaluating profitability helps sureties gauge the principal’s ability to generate consistent revenue and manage expenses. Strong profitability indicates financial strength and efficient business operations.

Bringing It All Together

When a surety company requests “full financials,” they seek comprehensive financial documentation that provides a detailed view of an applicant’s financial position. The surety can assess the principal’s financial health, stability, and capacity to fulfill their obligations by analyzing these documents.

Understanding the importance of full financials and preparing these documents accurately and thoroughly is vital for a successful surety bond application. Working closely with an experienced accountant or financial professional can help ensure that your full financials present your financial position in the best possible light, increasing your chances of obtaining the surety bond you need.

Get the Surety Bonds You Need Fast with ZipBonds

Contact the ZipBonds team to apply for your surety bond today. We offer thousands of bonds, including court, construction, fidelity, and license and permit bonds. You can always reach us by calling (888) 435-4191 or emailing support@zipbonds.com.