Bonding 

Basics
Basic Bond 101

• What is a Surety Bond? “Co-signer for Hire”

• Parties to a Bond include:

• The “Principal”, the party required to provide the bond

• The “Obligee”, who the bond is in favor of (usually an Owner, GC or Govt Agency)

• The “Surety”, the company guaranteeing the obligation under the bond per the contract

• Types of Bonds:

Contract: Includes Bid, Performance and Payment, Maintenance and Supply

Commercial Bonds: Non-Construction contract, license and permit, court, 

janitorial, healthcare and so many more!

• Benefits of having a bond include transfer of risk, guarantee of contract 

performance, 3rd party verification of Contractor capability, protects taxpayer 

dollars on government projects. 
Understanding the Underwriting Process

The 3 Cs of Surety

“Capital, Capability, Character”

Financial Strength

Experience in the scope of contracted 

obligation

Credit Rating of Indemnitors

History of Paying Suppliers and Subs

Established Bank Relationship and Line of 

Credit

Experience of Key People

Financial Statement Quality 

Bond Limits

Based on underwriting criteria such as:

 Largest job completed

 Available working capital

 Surety Treasury Limits

 Financial Statement Quality *based 

on current market trends

1. Internal statements ($2MM)

2. CPA Compiled Statement 

($4MM)

3. CPA Reviewed Statement for 

bonds over $2MM (Most 

bonding programs are 

provided at this level)

4. CPA Audited Statements for 

bonds and programs that 

exceed $25 Million

Bond Costs

Costs range depending on type of bond 

and underwriting criteria

 Bid Bonds – No Charge (in standard 

bonding program)

 Performance and Payment Bonds 

– 1-5% of contract price*

 Commercial and Misc. Bonds –

generally 1-3% of bond penalty 

amount 

Other factors that could influence 

overall cost is use of additional tools 

such as collateral, funds dispersal (fka 

Funds Control) and SBA Bonding 

Program. These apply to nonstandard bonding programs
Where do I 

start?

Gather your 

“A” Team

Plan to Fail Get 

Sophisticated

• Banker

• Obtain CPA 

specializing in your 

industry that 

understands surety

• Retain Attorney 

specializing in your 

industry

• Insurance Agent

• Professional Bond 

Agent

• Consult CPA BEFORE fiscal 

year end and obtain 

“Percentage of 

Completion” basis 

statement either on 

“Review” or “Audited” 

(depending on your needs, 

keep in mind a “3- year 

tail”)

• Have your attorney review 

contracts PRIOR to signing

• Obtain your bank lines of 

credit when you DON’T 

need them for as high as 

you can qualify. 

• Obtain an integrated 

accounting and job 

costing system

• Knowledgeable 

bookkeeper/CFO

• Maintain high quality, 

quarterly interims and 

job schedules

• Maintain a system for 

collecting receivables 

on a timely basis
Roadblocks to 

Success

You are what 

you do, not 

what you say 

you’ll do

DON’T

• Ineffective financial 

management system

• Maxed bank lines of credit

• Poor estimating/job costing

• No business plan

• Lack of communication

• Litigation/Notice of NonPayments/Tax Liens

• Uncontrolled growth 

• Venturing into unknown 

territory or scopes of work

• Signing contracts without 

reading or negotiating 

terms in advance – Be Sure 

to watch for onerous 

language!

DO

• Communicate openly with 

your “A” team

• Network, Network and 

Network some more! Build 

those relationships

• Join associations . Your 

competition can also be a 

partner. 

• Reach out to local PTAC –

find out about available 

certifications

• Remember there are two 

parties to the contract, 

negotiate fair terms for 

both parties

• Watch out for onerous 

language such as extended 

warranty provisions, high 

liquidated damages and 

especially “consequential 

damages” in your 

subcontracts. They can be a 

surety killer! 
Other 

Current 

Market Hot 

Topics:

• Jumps in job size – contract costs have 

gone up along with inflation

• Bid Spreads – “Why does my surety ask 

for an explanation”

• Onerous Contract Language – things to 

consider BEFORE you sign the contract –

Read the clauses! 

• Job Start Delays – How does this affect 

the bonding?

• Geographic or Scope Expansion – “know 

before you go”
SBA Surety Bond Guarantee Program News

• Source – Federalregister.gov – February 15, 2024 -SBA announced new 

guidelines for small business qualification. These go into effect on March 

18, 2024.

• Previous guidelines for contractor size – No more than $15 Million in 

tangible net worth and not more than $5 Million in average net income 

over 5 years.

• New guidelines state – No more than $20 Million of tangible net worth and 

net income is $6.5 Million over 5 years.

• Bonds Limits – New single contract limits up to $9 Million and up to $14 

Million for federal contracts that are certified by the contracting.

• Caveat – Surety is still first line of underwriting, SBA re-insures the Surety
QUESTIONS?
For More Information:

FSB America / Florida Surety Bonds Inc. 

(407) 786-7770

www.floridasuretybonds.com

Emily Golecki, Surety Specialist

O: (407) 478-6842 C: (813) 361-6347

(888) 786-BOND (2663)

Emily@FSBAmerica.com

Emily@Floridasuretybonds.com