Do Surety Bonds Have Limits?
You already know that bonds expire after a certain amount of time has passed and they can be renewed. However, you may not know that bonds can have limits. This basically means that your bonds can be limited to a specific monetary value. Just to recap a little bit, surety bonds are preapproved for two maximum values. First, you have the single limit, which will be the largest amount that you can be bonded for a single project.
Next, you have the aggregate limit. This is the total amount of bonded work that you can have at one time. For instance, you can have multiple projects going at one time, but the total bonded cost of all projects cannot exceed your aggregate limit.
How To Increase Your Bond Limit
When a surety bond company is considering underwriting your bond, they are going to look at your financial stability. Your financial statements and work history will show the surety company, if you are capable of handling larger projects that require larger bonds. Your statements must show cash flow, equity, profit, and working capital.
When you are applying for a bond of this manner, it would be in your best interest to work with a CPA (Certified Public Accountant). He or she knows this industry and will be able to help you prepare your financial documents.
Choosing The Correct Accounting Method
There are several different accounting methods that you have to choose from. The cash method is probably the simplest of all, but it limits your company to only bidding on smaller projects.
The accrual method will allow you to greatly increase your bond limit, as long as your company is in good financial standing. When you choose a good CPA to work with, this is probably something that you will not have to worry about, because he or she will be able to guide your company in the right direction to success.
Do Not Limit Yourself
It is a known fact that all surety companies have bond limits. Some companies will offer higher limits than others. You never want to miss out on the chance to take on a larger project to grow your business. This is why it is imperative that you check out several different surety companies, before you decide on which one to hire.
Everyone wants to be successful and as you can see, the key to a successful business are surety bonds. However, surety bonds can be tricky and you want to make sure that you fully understand them and their limits. If you want to limit your mistakes and losses when it comes to bonding, it is recommended to learn the definition of Surety Bonds, check out Investopedia, they explain it in the most simplest terms.