Masonry Magazine February 2003 Page. 47
Use your personal resources to obtain a separate building loan, and although you may use your own company to do some or all of the work, make sure you do not do it below cost, including overhead, and have it show up as a liability.
Personal loans to owners or officers are usually deducted as an allowable asset from your financial statement. Bond companies do not consider a loan to an owner as a collectable receivable. In essence, it is often only paid back if and when the owner solely decides to. This is not considered a secure asset.
As mentioned before, keep in mind that the bond is provided for the benefit of the owner or general contractor. The Bond is a contract that states you will do the work scoped in the contract in a timely, professional and financially responsible manner. The bond is not designed to provide you with any rights or protection, just the obligee. However, bonds are not intended to be used to unfairly or as leverage by the Obligee to "hold your feet to the fire," and disagreements will arise. Coordinating and informing your Surety Agent and your Bonding Company in these issues at the beginning will usually result in a favorable resolution.
Applying for and developing a bond line is usually an on-going and long-term process. The number of jobs will continue to increase in a weaker economy as the owners and lenders are taking additional measures to protect their money from unforeseen problems. 2001 was a horrific year for bonding companies who experienced record losses due to the sheer number of failures of construction companies, large and small, as well as bond losses resulting from some major corporations such as Enron. Although bond underwriting is increasingly strict and cautious, there is capacity for new accounts.
The attraction to bonded work for many contractors is that there are usually fewer bidders. The bids that do come in are from quality, long term companies that realize the importance of bidding and taking work on a profitable basis. Requiring a job to be bonded will eliminate many contractors who are just trying to make payroll and squeak by. If you are willing to do the paperwork, commit to establishing a long-term business strategy based on financial soundness and a quality reputation, you might want to consider becoming a bonded contractor. This could well open the doors for you to an increasingly growing segment of work that you had never considered before.
Specializing in construction, John Cramer, AAI, has twenty-two years experience in commercial insurance and bonding and is a partner/owner of TriSure Corporation, one of the largest privately held insurance brokerages in North Carolina. He also manages one of the largest masons association insurance programs in the country.
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February 2003
Masonry
45