Key factors in assessing bondability

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If you’re a contractor wanting to increase the amount of bonds you can get, don’t miss this episode. Stephen shares his top strategies for increasing your bondability on this week’s episode.

 Topics we cover in this episode include:

  • The three things bonding companies care about most
  • How to start putting together your bond application
  • Completing the Contractors’ Questionnaire
  • Sharing references and key employees
  • How to work up to the next level of bonding
  • Indemnity agreements and personal guarantees
  • The most common challenges contractors run into when trying to get bonds


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Wade Carpenter, CPA, CGMA |
Stephen Brown, Bonding Expert |


[00:00:00] Wade Carpenter: Welcome to the Contractor Success Forum. Today we are taking a behind the scenes look at getting bonding, which in construction can be very intimidating, and talk about the steps involved if you wanna go down that road. 

Here on the Contractor Success Forum, our mission is to provide game-changing financial education for contractors to help you be more profitable, grow, and succeed in your business.

And who is here do help us do that? We have Stephen Brown with McDaniel Bonding and Insurance Agency, and I’m Wade Carpenter with Carpenter Company CPAs. 

And Stephen, I’m hoping you’re gonna give us lots of secret sauce today.

[00:00:43] Stephen Brown: Well, I hope so. It doesn’t have to be intimidating.

[00:00:47] Wade Carpenter: Yeah.

[00:00:48] Stephen Brown: Doing electrical work is intimidating to me, but I don’t do it every day. So what I do is bonding. Bonding and insurance all day. And I’ve been doing it for more years than I want to count. And I started off learning my trade working for a surety company as a bond underwriter.

So, my job is, I kinda like to think of myself as being a yenta, a matchmaker between you and a good surety company. Does that make sense?

[00:01:17] Wade Carpenter: Yeah, absolutely. James Bond Brown here. Having that underwriting experience I think goes a long way. Because I, as we’ve said privately, there are bad bond agents and there are good bond– not, not that anybody’s necessarily bad, but there’s a lot of bond agents out there that don’t really know their way around the bonding game. And I can say that as a CPA that works with a lot of bond agents. 

And so I was hoping today you would walk down a standard application, talk about some of the pieces involved, and hopefully dispel some of the myths and fears in trying to apply for a bond.

The three things bonding companies care about most

[00:01:53] Stephen Brown: Okay, well, you know what I as your bond agent am trying to get done in order to get you that bid bond or final bond that you need is I am trying to put together a package to let the contractor know about the three things that they look at most. That’s cash, character and capacity. 

The cash, do you have any working capital in your company to fund projects and to keep paying your bills till the money comes in? The second thing is character. Do you do what you say you’re gonna do? You have a good reputation? And then capacity. What’s your capacity of work? What’s the most you can do overall work program? What size jobs are you comfortable, what type of jobs are you comfortable doing? 

So I put a package together to send to the underwriters. First of all, I call and I tell them a little bit about you, and then I send that marketing package in. And to me, I want every underwriter to say, hey, by the way, I really like your marketing package. You get everything I need to make a decision.

And that’s just it. We don’t wanna just get started. We want that bond underwriter to say, yeah, we’ll bond you, we’ll do it. And so right now, we talked about this before, Wade. There’s credit scoring bonds that can get you up to half a million dollars on any one project based on your personal credit score. Well, that’s easy. I can just send you an app for that. 

But our whole goal is to get with the standard surety market, getting good bond rates and a great capacity of surety credit, and the best terms we can for your bonds. And then just work on that relationship between the bonding company and me and you and making sure we’re communicating and everything’s going smoothly.

How to start putting together your bond application

[00:03:45] Stephen Brown: So we talked earlier about how to start and what we put together. And I have on my website a sample package of forms, information you can download to start putting together. Just get started. I wanna say it’s like if you hate applications, you can do it with your bond agent. A lot of it over the phone.

Nobody likes– but if you can start just gathering the information together, we don’t have to have all of it at one time, but just get us enough to get us started and we’ll poke and prod and get the rest of the stuff out of you because we’re not gonna try to get your bond approved unless we know it’s gonna be approved.

So I can say when I send a bonding submission out to someone, and I know you, and I know a little bit about your financial condition, I know whether that bond’s gonna be approved or not. So there’s no need to waste each other’s time. Does that make sense?

[00:04:45] Wade Carpenter: Yeah, absolutely. So can we like dive into some of the pieces?

Contractor’s Questionnaire

[00:04:49] Stephen Brown: Sure, sure. Okay. The first thing is a contractor’s questionnaire. And the contractor’s questionnaire is normally four pages. It has been around since forever. The questions that are asked, at McDaniel Whitley here we have our own questionnaire that takes from all the different companies’ questionnaires and merge it in into one that all of them accept.

So, the contractor’s questionnaire tells about who you are, name of your company, legal entity of your company. Are you an LLC, a C-Corp? Who the owners of the company are. That’s the first page, and then it just starts working its way down to a little bit more information. 

On the next page, it, it’s asking for your work program, your CPA, what level of CPA construction year-end statement do you get? Is it a compilation or a view, an audit? 

Then a little bit about your bank relationship. Do you have a banker? Who are they? What’s their name? Do you have a bank line of credit established? And if so, what are the terms of that? Then you move on in to references.

[00:05:59] Wade Carpenter: You’re diving all the way down into the whole thing.

[00:06:02] Stephen Brown: Well, yeah. Well, I have to because I, I want our listeners to know what’s needed as a–

[00:06:07] Wade Carpenter: Yeah. So can we back up a little bit? I suppose they just wanna know who the company is, how long they’ve been in business, and just some general facts. Is that correct?

[00:06:17] Stephen Brown: But also more importantly, references from specific jobs that you’ve worked with other professionals. They wanna know about that.

[00:06:26] Wade Carpenter: Right, right. Then you got into things like references for suppliers and–

[00:06:32] Stephen Brown: Yeah. Architects, engineers, suppliers, and if you’re a general, other subcontractor references, and if you’re a subcontractor, maybe some general contractor references.

Sharing your references and key employees

[00:06:43] Wade Carpenter: Do they ever ask for references to owners of past projects? Because I do know they get into diving into the past experience.

[00:06:53] Stephen Brown: They do, and you wanna put people in there that know you well and know your capabilities. It’s also a great way to focus on what you do best. If you can’t come up with any references, then Then your agent will help you with that. You’ve apparently done some work for someone and made somebody happy, so that’s good to show.

And then the next thing they wanna know, Wade, after your project information is your staff, your project managers. 

[00:07:21] Wade Carpenter: Why do they wanna know about the employees?

[00:07:23] Stephen Brown: Well, you can’t have a hundred percent of all the attributes of everything and still run multiple jobs. So they wanna know you’ve got some experienced key people that can help you run those jobs. 

Also if you have experienced people that are working for you, it does give you more of a stability if you’re a new company as well. So that kind of thing’s important.

[00:07:46] Wade Carpenter: Well, I would think about different types of construction and maybe your resume doesn’t necessarily show that I’ve done this type of work, but maybe somebody that works for you has that expertise. Could that help play into it?

[00:08:02] Stephen Brown: Yeah, that definitely helps. That contractor’s questionnaire is something that your agent always redoes, and retypes. So you can scribble the information on there and do it. But in my entire career, I’ve never sent a potential customer a contractor’s questionnaire and got it back perfectly done. That’s what we do and that’s what we wanna do for you. 

Next thing is uh, resumes, company information, marketing information. A copy of your insurance certificate is important next. That’s the first part of the package. 

And the next part of the package is last three years of fiscal year-end financial statements if you have them.

[00:08:50] Wade Carpenter: Okay.

[00:08:51] Stephen Brown: So if you haven’t been in business for three years, two years. You don’t need to send five years or 10 years. Well, maybe, you know, six years ago we had a good year. Let me send them that one. No, they, they want the last three years.

[00:09:04] Wade Carpenter: Right. before we dive into the financial side a little more can we go back to why are they asking for things like marketing information and we glossed over the contracts as well. We talked about the type, but are they worried about if they’ve only done a hundred thousand dollars job and they’re applying for a $3 million job, is that–

[00:09:25] Stephen Brown: Well, that’s on the contractor’s questionnaire too. Well, what’s the largest job you finished and what year was it? And then what’s the largest overall work program you’ve had at any one time? So how much total sales, revenues, work contracts have you had, you’ve been working on at any one given time and space?

Oh man, that would’ve been, 2002. I had a $10 million backlog or $50 million backlog. So, that’s gonna really come in handy when they look at your financial statements, Wade. And they, they look at the jobs that have been completed and jobs in progress. Wow. Talking about carrying some weight in my package.

But the reason I want all these things is because the more I know about you, the better I can sell you. And we talked about the character part too. We’ve kinda gotta like each other because there’s a reason that we’re called bonding and insurance agents. We represent you to someone else.

So we represent you to the bonding companies and we represent you to the insurance companies to get you the best prices, the best coverage we can do.

[00:10:40] Wade Carpenter: Okay.

Well, going back to what you said about the marketing information, why do you care? Is that something that you’re gonna give the underwriters, or is that more for you?

[00:10:49] Stephen Brown: We might but it, it might showcase, some pictures of jobs. If you have a great website that’s something that definitely helps immediately create a comfort level with the bond underwriter. The number one thing that a bond underwriter looks for first and foremost is your financial stability.

[00:11:09] Wade Carpenter: Okay.

[00:11:09] Stephen Brown: You’re like, oh, Stephen, we were having so much fun talking about this stuff till you brought that up. 

How to work up to the next level of bonding

[00:11:15] Stephen Brown: But wherever you are, you can always get to the next level for what you want. And if you tell me, Stephen, I need a $20 million bond, and your biggest job is $6 million or 5 million. Then we’ve got work to do to talk about where to get you, where you need to be, and that’s my job.


[00:11:38] Wade Carpenter: So in the situation like that, what kind of advice would you give a contractor to work up to that level of bonding? 

[00:11:46] Stephen Brown: Well–

[00:11:46] Wade Carpenter: Are there things that we could do to help get you there? Tell us those kind of things.

[00:11:50] Stephen Brown: Well, the first thing I would say is have a good financial board of directors in place that are already working on your behalf. And that’s a good construction related CPA, like you, Wade. Construction accounting is an expertise that you learn by handling contractors, and nothing but contractors.

There’s plenty enough to keep you busy, but you get a bad CPA, a bad attorney, a bad banker, then you’re not getting good advice. So you wanna seek out the best CPA, banker, and attorney, and also bonding and insurance agent. 

So those are the five people on your financial board of directors. So if you have those in place, I can just tell you that if I go to an underwriter with your name, logo, company statement on the year end, they know that they’re gonna have all the information in that statement they need to make a decision and they’re gonna trust it. That opens doors. You’ve got a good attorney with a good reputation, that’s a feather in your cap. You have a banking relationship with a bank line of credit that you use sparingly, that’s a great resource to help you get your bonding. 

So all these things were important to me because they helped me get you more bonding at better rates. Does that make sense?

[00:13:06] Wade Carpenter: Yeah, absolutely.

[00:13:08] Stephen Brown: Okay. So we have the contractor’s questionnaire one. And then two, we’ve got three years worth of financial information.

And so many times I’ll hear well, we don’t have that. Well send me your tax returns. Let’s get started somewhere and see where we need to go. Well, I filed an extension on this year so that, but then let’s put together some kind of compilation financial statement just to see where you are. And that’s my job to help you get there. And then it’s Wade’s job, for example, to help take you to the next level on your accounting system. 

And then we are gonna need a personal financial statement that’s no older than six months old. So we have sample personal financial statements. They don’t have to be done by a CPA. They don’t have to be perfect and exact, but they’re basically, we’re, we’re telling the bond underwriter what other assets you have besides your company that can help back up your bonds. 

And then if we have a copy of your bank line of credit letter from your bank that’s important. And and that makes a good package. 

So you can see all the moving parts. It’s like you can’t build a good engine that works without a lot of moving parts in there. And those moving parts are business fundamentals. Everything I’m asking for to get you a bond, Wade, is a foundational support to a successful construction company. I’ve said that for a long time. 

I’m not just saying it because I’m bragging about bonding companies, but a good bonding relationship means you’re running a good company.

[00:14:45] Wade Carpenter: Yeah. Well, I know we’ve talked before. I’ve had some of my contractors get these bonds from overseas companies that’s probably not worth the paper that’s written on. I would say having a good bond agent as well can open the doors. You kinda put yourself behind everybody else, but I think having a good relationship with a bond agent that can explain your situation, that knows really the bonding markets out there.

I know you’ve pulled a couple of tricks out of your, your hat with SBA and some of these other things for some of my clients. So, can you talk about that a little bit?

[00:15:22] Stephen Brown: Sure. I can just tell you what it was like when I was a bond underwriter. I would get a package of information in, and I’m embarrassed to say this is before email and internet submissions. So that’s, I’m an old guy, but I would get that package on my desk, Wade, and I’d get a bunch of them. 

And there’d be certain agents, certain package I’d go to first. Well, this one’s gonna be easy. Let’s get that one done first. So I know what an underwriter needs to see to make a decision. And sometimes all these elements that we’re asking for aren’t in place. So we’ve gotta turn around and really make the things that are in place shine until we can get the other things in order.

And so, underwriters, like anyone else, if they like you, they want to help you. They wanna be a team member, they considered themselves a member of your team.

Indemnity agreements and personal guarantees

[00:16:16] Wade Carpenter: Right. What about things like indemnity agreements, personal guarantees, those kind of things. How do those play into getting bonded?

[00:16:25] Stephen Brown: Well, that’s a great question because an indemnity agreement, it’s called a general indemnity agreement, is usually a number of pages that you and your spouse sign. And the reason you and your spouse sign is just to let the bonding company know, we have some skin in this game with you. 

Because remember, bonding is not insurance. They don’t ever expect to have a claim, but they charge you a premium because they do have claims, hopefully not from you, but from other contractors. 

Now you say, well if, if my wife signs, why is that? Well, it’s because some contractors can take some money from their company and move it into their personal accounts or their wife’s accounts to hide money and assets while they’re going under.

And then the bonding company doesn’t have any way to help fund getting the project finished. Now laws in almost every state protect what the bonding company could take. Your house, your retirement accounts, that’s untouchable. But if you know you’re gonna finish the project and you know that you’re good at what you’re doing and you have all these aspects in place, the indemnity agreement really shouldn’t be scary because the most important thing to know, Wade, is the indemnity agreement does not come into play until you default on a project.

[00:17:43] Wade Carpenter: Yeah, hopefully we never have to go there.

[00:17:46] Stephen Brown: Yeah, it doesn’t matter how many pages are. All the surety law has to do with the definition of defaulting on a project. That’s walking away from a project. 

So a lot of times you might say, well, I need to default on a project. No, not default. You need to quit a project and walk away. The owner is not agreeing to the contract language.

He’s not paying you according to the contract. He’s asking for things that are not in your contract. Legally, you can terminate that contract. That’s not defaulting. Defaulting is when you walk away from a project and just say, I, I can’t do this. And does that make sense?

[00:18:26] Wade Carpenter: Absolutely. Absolutely. 

Well, so I’m gonna put you on the spot here a minute because I know you are full of stories from this industry for many years. 

The most common challenges contractors run into when trying to get bonded 

[00:18:35] Wade Carpenter: Can you tell us some of the common challenges that you typically run into with a contractor and trying to get bonded and maybe give us some stories of a case study that, how you overcame those things?

[00:18:48] Stephen Brown: Sure. There’s so many different customers we have, and just like you as a CPA or an attorney, each one of our customers are individual entities. And your business and our business is just your business and our business, it’s no one else’s. 

But as a general group of folks, contractors are some of the finest people you could ever want to meet. They’re a great group of people to work with. I love it every day and it’s always challenging. And there’s nothing more sad than one of your contractors going under on a project.

And if I helped you get a bond for a project that you couldn’t do and I just crammed it down someone’s throat and got it done and then you lost your shirt, I wouldn’t be doing my job for you. And so that, that, that’s happened before. 

I had a contractor once, literally a hundred dollars cash and a pickup truck. Painter. And he was such a nice guy. We just started talking. And Next thing you know, he got a foot in the door doing larger municipal painting jobs. Did a great job. Everybody loved him, great personality, hard worker. But he knew paint, he knew his profession. He was really good at it. 

So then we started working on all these things to make that bond package good. And then we got some little jobs bonded, and the bigger jobs bonded, and a and a million dollar painting job bonded on a big warehouse. And he was doing great.

Unfortunately he got into going to Vegas and got sidetracked from what he was doing. But nevertheless, I have a lot of customers that we’ve grown up together in this business and we’ve helped each other. And the main thing is just like we always say on the Contractor Success Form, we’re here to help you make a profit. We’re also here to help cut down on your stress. Because believe me, we’ve heard and seen a lot. And if there’s anything we can do to help, that’s what we’re here for.

[00:20:55] Wade Carpenter: Okay. Well I think this has given us a really good overview of kind of the process. Can you tell us about like how you work and do you charge for taking an application or things like that? 

[00:21:07] Stephen Brown: No, not at all. I don’t get paid unless I get you approved for bonds. And there’s no charge for bid bonds if the job requires a performance and payment bond. 

So you’re gonna bid a job, you wanna get the bid bond from me, or you’ve negotiate a job, you need a performance bond from me. Well, there’s a rate charged based on what we’re able to negotiate for you. So, we only get paid when you get the job. 

It’s a perfect world. We don’t charge you for talking to you, but you can reach out to me at That’s my company, McDaniel Whitley Insurance and Bonding here in Memphis.

And also my webpage will be out soon, which is, where you can just book a time to talk with me. So, check that out and give me a call. I’m happy to talk to you.

[00:22:02] Wade Carpenter: Okay. Is there any charge for the consultation or anything like that, or?

[00:22:07] Stephen Brown: No. No, not at all. Not at all. If I can help you, I’m happy to help. That’s how I get new clients. You might just have a good agent situation or something going on where you just need to bounce something off of me. I’m happy to help with that in any way. Developing relationships is the key to my business.

[00:22:26] Wade Carpenter: Okay. That’s great to know. We’ll definitely make sure your contact information is always in there, but maybe we can put the link to your website and those kind of things in the show notes where everybody can find you and maybe just book that call to talk with Stephen if they’ve got questions about what we’re talking about here.

[00:22:45] Stephen Brown: Yeah. And get a sample of this contractor’s questionnaire and some other things just to help you get started. Help you get focused.

[00:22:53] Wade Carpenter: Okay.

[00:22:54] Stephen Brown: Okay.

[00:22:55] Wade Carpenter: Any other final thoughts before we kinda wrap up here or?

[00:22:59] Stephen Brown: No. I think we’ve covered it. Thanks, Wade.

[00:23:02] Wade Carpenter: Okay. Well, thank you all for listening to the Contractor Success Form, wherever you might be tuning in. Find us on all major podcast platforms on Contractor Success Form or our YouTube channel at Carpenter CPAs. Be sure to check the show notes for more free resources and Stephen’s information.

If you haven’t already, we would sincerely appreciate it if you would consider subscribing to our YouTube channel and ring that notification bell to follow each episode as we post it every week. We sincerely appreciate your support and comments in this journey, and we will look forward to seeing you on the next episode.

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