Why you need it
As a business owner or construction contractor in Canada, you will quickly discover that it is essential to jump over many hurdles, before you can actually begin serving the public and making money. While these hurdles may feel unnecessary, they’re required by Canadian law and breaking these laws will turn you into a failure, before you even get started. One of the most pertinent steps to take is to obtain the necessary surety bonds. Before you can do that, you will need to meet a few basic requirements. Below, you will learn about these requirements and why they’ve been set in place.
In many cases, the surety company will not be willing to provide the business with the surety bond, until they’ve been licensed. The licensing requirements tend to deviate from one Canadian province to another. Coincidentally, your business will first need to obtain a license bond before you’ll be eligible for the license. Obtaining the license will be a first step in the right direction. Even if the surety company doesn’t verify your company’s license, it is still pertinent to get it.
This is the case, because you cannot run a business in Canada without a business license.
Decide What Type Of Bond Is Needed
Next, you will need to take the time to figure out precisely what type of bond is needed. In many cases, you will be required to get one bond and then another one shortly thereafter. This is especially true for construction contractors. If you’re interested in bidding on a new project, you will need to get the bid bond. If you’re trying to make a guarantee to the project owner, you will need a performance bond and probably a payment bond as well. Even if you opt for the bid bond, you should remember that the performance and payment bonds will be needed next, if you’re selected for the project.
Take the time to determine what bond is needed and the amount that is required. This can be a little tricky for new contractors. Speak with our surety bond experts. We’ll be able to help you obtain the exact bonds and bond amount that you require.
Every surety has established requirements and standards, pertaining to the underwriting process. If you have obtained a surety bond from one underwriter and want to switch to another surety in your area, you should not expect the processes to play out in the same manner. The prequalification is a rigorous and time-consuming process, requiring the applicant to jump through a lot of hoops. Now this does not necessarily say that the surety company is dragging out the process, but only that they are doing their job thoroughly and accurately.
With this said, most surety companies will request the applicant to provide them with the past three years fiscal-year-end statements. This is a requirement that many applicants have difficulty meeting, which is why we only request the past years’ fiscal year-end statement. This will lessen the burden for both our clients and underwriters.
Why You Need An In Depth Business Plan
When you are applying for a surety bond, you will notice the different types of information requested by the insurer. One of the things they are going to require you to present is a solid business plan. This business plan just basically outlines the size and type of project you are currently working on and/or new projects you want to take on in the future. This plan will also include the provinces, in which your company operates, profits the company makes, and the growth of the company. Why is all of this necessary? When this information is complied together, it will allow the surety company to assess if your company is financially capable of handling the job the new construction project.
There are so many construction companies across Canada that try to undertake jobs that are too large for them to tackle, but a surety bond prevents the project owner from having to face this type of reality. As you can see, this is a lot of detailed information and it is just the beginning. The surety company will require a lot more information than this and it really can speed things along, if you obtain the necessary paperwork in advance.
Exploring Your Line Of Credit
Another important aspect of your company that the surety will look into is your line of credit. When you hear “line of credit”, the term basically refers to the financial institutions you have conducted business with in the past. The surety will look at how many loans you take out, the size of the loan, and the time period within which you pay them back. This once again will allow the surety company to determine if you are financially capable of taking on the new project that you are planning to bid on.
If your line of credit isn’t very good, it can cause the price of your bond to greatly increase and in some cases, it can prevent you from getting approved for a surety bond. With this in mind, it is truly in your best interest to keep your credit in good shape. This will ensure you pay less for surety bonds, while also making them easier to obtain.
Finally, you should remember that the majority of surety companies will require the principal to sign an indemnity agreement before the bond will be issued. This agreement helps to determine where the financial responsibility is placed. This will also provide the surety company with reassurance that they’ll be able to recover their losses should the Principal be hit with a surety bond claim. If the client files a claim and the surety company is forced to pay out, they’ll come to you for compensation. The indemnity agreement confirms that you are willing to repay the amount the surety company was forced to disperse to the project owner.
Once the agreement is signed, the surety provider should issue the surety bond to your company. Normally, the bond will arrive through the mail within a few days.