Bonding capacity plays a critical role in helping construction companies qualify for larger projects. It signals financial strength, project stability, and reliability to both clients and surety providers. If the goal is to grow and take on more complex work, improving bonding capacity should be a strategic priority.

There are several practical steps that contractors can take to strengthen their position with sureties. Some of the key areas to focus on are outlined below.

Financial Management

  • Retain more earnings in the business - Keeping profits in the business rather than distributing them can boost working capital and equity—two of the main factors sureties consider when evaluating bonding capacity.
  • Contribute additional capital - Owners can strengthen the balance sheet by contributing personal funds, either as equity or through subordinated loans. This provides added financial cushion and shows commitment to the company's long-term stability.
  • Maintain strong cash flow - Reliable cash flow is essential. Staying on top of billing, collections, and receivables helps ensure that there's enough liquidity to support both current and future projects.

Financial Reporting

  • Use reviewed or audited financial statements - Upgrading from internally prepared statements to CPA-reviewed or audited financials helps improve credibility with sureties. It also provides a clearer view of financial health.
  • Include work-in-progress (WIP) schedules - Accurate WIP reports help sureties assess job performance and profit trends. This level of detail can lead to more informed bonding decisions.

Strategic Planning

  • Be selective with capital spending - Large equipment purchases can reduce working capital. Financing or leasing assets instead of paying cash can help preserve liquidity without sacrificing operational needs.
  • Manage project backlog carefully - A healthy and profitable backlog shows that the business can handle more work without becoming overextended. Sureties will view this as a positive indicator of capacity and control.
  • Build strong advisor relationships - Regular communication with financial advisors and surety agents allows for better planning and timely adjustments to bonding strategies. These relationships are especially important during periods of growth or change.

Final Thoughts

Bonding capacity isn't just about financial metrics—it's also about trust, planning, and transparency. By making thoughtful financial decisions, improving reporting practices, and maintaining open lines of communication with surety partners, contractors can put themselves in a stronger position to pursue larger and more complex projects.

For questions about how to assess or improve your company's bonding capacity, contact your HLBGC representative or surety advisor.