The Bonding Industry Gains Interest in Small Contractors

While for the last two to three years it's been difficult for small contractors to bond jobs, the experts say that the market may be loosening up, making it a good time for glazing contractors new to surety bonding to jump into the market.

"The surety industry had some terrible losses for a few years there up until about two, three years ago," explains E. J. Kelley, executive vice president and general counsel for Enclos Corp in Eagan, Minn. "They had a number of prominent contractors go down and … big corporations had some issues so there were large losses in the surety industry. And so they significantly tightened their underwriting standards."
According to Kelly, that's made it tougher for companies without a long history in business or with weak credit to take on big jobs.

Lynn Schubert, president of the Surety and Fidelity Association of America in Washington, D.C., agrees.

"The industry has been … what the insurance industry would call a soft market for quite some time. A lot of people were getting bonds; just about everybody was getting bonds, and construction was good-everyone was making money. [Then] people started to lose money, and that always means the sureties end up paying once contractors default. And so the market tightened up and they really increased their underwriting standards again, went back to reviewing all the basics of 'do you actually have the capital and the capacity to perform the work.' And so a lot of people who had had bonds were unable to get bonds for a while," Schubert says.

However, Schubert says that the bonding industry has been profitable for the last two years, meaning that requirements are beginning to loosen somewhat.

"They've started to actually make money again," adds Jim Stathopoulos, chief executive officer of Ajay Glass & Mirror Co. in Rochester, N.Y. "With that comes typically a little bit of loosening in the ability to obtain bonds but again, if you have a financially viable company, and you can show them you've been financially viable for an extended period of time, they'll certainly consider you."

However, after a tough couple of years, bonding agents are looking for more hard data than they may have required several years ago. "It's actually an interesting phenomenon because it appears that people are not loosening up to the extent that they did in the past where they were writing bonds for unqualified people," Schubert says.

"They won't [consider a company] just based on … your own in-house numbers, they're going to want an audited statement," Stathopoulos adds.

Now, instead, bonding agents are diversifying the group of contractors to which they offer bonds.

"Not everyone is chasing the mid-size contractors anymore, there are actually people focused on mega-jumbo contractors as well as small and emerging contractors, and that's really where I see it loosening up. They're not saying that you don't have to be qualified but they're more interested in talking to a diverse group of contractors," Schubert says.

To learn more about the requirements bonding agents are looking for, and advice for bonding your first job, look for the October issue of USGlass magazine.

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