HOW DO YOU GET A CONSTRUCTION BOND?
COUNT ON STOKES SURETY BONDS
Are you a construction contractor or the owner of a construction company looking to expand in the state of Texas? If so, there are a few things you need to know in advance. First and foremost, all construction companies and contractors operating in Texas must be licensed and insured. As far as bonding goes, the state of Texas does not require these professionals or companies to obtain construction bonds.
However, it is always in the company’s and professional’s best interest to get bonded. What role do surety bonds play in the construction industry? Why should my construction company get bonded? How will being bonded help my construction company build a strong and lengthy customer base? Find the answer to these questions in the article below.
TOO LONG; DIDN’T READ (TL;DR)
To obtain a construction bond, you must first research the company to see which one best suits your needs. Once you have decided that, you must complete the application form which asks basic questions about your company and its history. You will also be required to submit your financial statements for the past two years, contract experience information for the past five years, and information about your liability insurance. Hence, it is ideal to have these documents prepared in advance. Post submitting your application, it may take anywhere from 24 hours to five business days for a surety bond agent to be in contact with you.
CONSTRUCTION BOND – WHAT ROLE DOES IT PLAY IN PROTECTING CONSUMERS FROM FRAUD?
Construction surety bonds are specifically designed to offer fraud protection to consumers and construction contractors. Thousands of fraud cases are reported in Texas each year. Unfortunately, most of these victims were not aware of the importance of surety bonds.
When it comes to consumer fraud, a surety bond could have acted as primary prevention right from the get-go. How is this possible? Well, unaware consumers are oftentimes victimized by contractors and companies that are not bonded or insured. A surety bond provides consumers with options when it comes to unfulfilled contractual agreements.
If for some reason, the obligee (the project owner) is dissatisfied with the bonded principal’s service, a claim can be filed against the surety bond. In turn, the surety firm would have initiated an extensive investigation into the claim to determine if it is legit or fake. Once it is determined the claim is legit, the surety company will issue a payout to the victim.
CONSTRUCTION BOND – WHAT ROLE DOES IT PLAY IN PROTECTING CONTRACTORS FROM FRAUD?
Texas construction contractors are no different than other contractors, as most share the same risk exposures. One particular risk exposure that comes to mind is fraud. Yes, construction companies are at risk of fraud just like consumers and government entities.
While the fraud risk for contractors is not nearly as high as that of consumers, it is a risk nonetheless. Unfortunately, not all consumers are as honest as they appear. In fact, some consumers are nearly impossible to satisfy, resulting in thousands of claims filed against contractors and companies each year.
To avoid these fraudulent claims, a construction bond is key. Instead of dealing with the claim upfront, the underwriter will investigate to determine its legitimacy. The obligee’s claim will be denied if it is determined to be fraudulent.
HOW TO GET BONDED?
Once you determine a construction bond will offer your company more pros than cons, it will be time to initiate a search for reputable underwriters in Texas. Fortunately, there are plenty of options to choose from.
But, like most service providers, not all underwriters or surety firms are created equal. Depending on your situation, it may be necessary to find an underwriter that works with low credit scores. These are factors that must be considered throughout the process.
Google will always be your best friend when it comes to conducting underwriter searches. Google search results will provide you with a long list of options, including our firm Stokes Surety Bonds. Our firm works specifically with construction contractors operating in the state of Texas.
WHAT YOU NEED TO KNOW ABOUT THE CONSTRUCTION BOND APPLICATION PROCESS
The second step of obtaining a construction bond involves the application process. All surety bonds have unique surety bond applications. To learn about this in more detail, please take a look at how does a construction bond work?
For example, Stokes Surety Bonds utilizes a simple construction bond application to ensure efficiency on all levels. But, to ensure an expedient process, applicants must answer all questions honestly and thoroughly.
If you encounter an issue during the application process, do not hesitate to contact our office to speak with a construction bond agent. Once you complete the process, just submit the application to our surety firm. An agent will contact you shortly regarding the application. For here, our underwriters will begin to process your application to determine if you are eligible for a construction bond.
To learn more about this for different types of construction bonds in detail, please take a look at the following links:
The first step of the application process is fairly simple. The second step is more extensive.
The applicant will be required to answer a series of questions, including:
1. Type of business (partnership, corporation, sole proprietorship, LLC, and LLP)
2. Company name and address
3. Upstart date
4. Surety bond history ( claims filed against bonds, denials, and approvals). However, it is important to note that the process can be very different for contractors with no previous surety bonding history.
5. Owner information (social security number, address, phone number, marriage status)
6. Obligee information
7. Scope of work
8. Type of bond
9. Bond estimate
All applicants are required to agree to a credit check. It is crucial to note, applicants with low credit scores are not always denied construction bonds. Some surety companies work specifically with low credit score-applicants. So, do not deny your construction company a construction bond just because your personal and/or professional credit scores are low.
To ensure an expedited application process, it is crucial to gather the required documents in advance. All applicants are required to submit their financial statements for the last two years of tax returns along with construction bond applications.
Not doing so will only delay the pre-approval process. Surety companies and underwriters refuse to process construction bond applications without the proper financial documents. Applicants and co-applicants are required to submit their personal financial statements for the last two years.
CONTRACT EXPERIENCE INFORMATION
All underwriters require construction bond applicants to provide information about their biggest contracts over the last five years. The information underwriters are looking for is project owner, type of work, location, price, gross profit, and year of completion. This only includes large projects that were completed successfully.
You will also be asked to provide information about two of your largest contracts that are still open. This question only applies to contractors with large open contracts. If you have any questions, you can contact Stokes Surety Bonds via email, landline, or snail mail.
Construction contractors are asked to provide information about their liability insurance. You will be asked to provide the name of your insurance company and the limits and expiration date of your liability insurance policy. If you have any trades that are subcontracted, this information must be submitted along with your financial documents and the construction bond application.
It is important to answer each question thoroughly and honestly. As difficult as some questions are to answer, it is best, to be honest. For example, underwriters generally want to know about the applicant’s past financial difficulties. If you declared bankruptcy, breached a contract, or have assets help in an escrow or trust account, you must provide this information to the underwriter.
After your application and required documents are submitted, Stokes Surety Bonds will take care of the rest. It can take anywhere between 24 hours and five business days or longer to complete the pre-approval process. In the meantime, business as usual.
NEED A CONSTRUCTION SURETY BOND FOR A JOB? COUNT ON STOKES SURETY BONDS