Bonding capacity estimator

This is the back-of-envelope math contractors and agents use before underwriting starts. It is not how a surety decides.

Adjusted working capital = working capital − discounted assets
Adjusted net worth       = net worth − discounted assets

By working capital = adjusted working capital × WC multiple
By net worth       = adjusted net worth × NW multiple
Aggregate program  = the lower of the two
Single job         = aggregate × single-job %
Room for new work  = aggregate − uncompleted backlog
Next job, roughly  = the lower of single job and room for new work

What sureties actually underwrite

Underwriters talk about the three Cs: character (integrity, references, claims and payment history), capacity (experience with this size and type of work, key people, equipment, a continuity plan) and capital (working capital, net worth, bank line, profitability). On top of that they read:

• Quality of financial statements. CPA-reviewed statements at minimum for larger programs, audited for the largest. Compiled statements usually mean a smaller program.
• Your WIP schedule. Margin fade, underbillings and jobs that lose money between statements weigh heavily.
• Banking and credit. An unsecured or lightly secured line of credit, its usage and covenants.
• Indemnity. Personal and corporate indemnity, and the owners' outside net worth.
• Job specifics. Contract terms, owner, duration, location, scope outside your normal work, and the largest job you've completed successfully.

Ways contractors grow capacity

Retain earnings instead of distributing them, collect old receivables, move officer loans off the balance sheet, keep a clean WIP with honest percent-complete, and upgrade statements from compiled to reviewed. Talk to a surety agent who specializes in construction before you bid a job near your limit.

Multiples vary by surety, market cycle and account. Treat every number on this page as a rough estimate only.