Being an HVAC construction contractor comes with a slew of responsibilities, not the least of which is getting bonded. The bonding process requires an understanding of the project requirements as well as the type and amount of bond needed. In addition, HVAC construction contractors must recognize that getting a bond is different than securing insurance, as a bond is meant to protect the project owner from lackluster or incomplete work, and not the contractor. Below are a few proven tips for getting bonded as an HVAC construction contractor to make the process that much easier.
Check Your Credit
Bonds for HVAC contractors rely heavily on an individual’s personal credit history. This is because surety companies want to feel confident in the contractor’s ability to pay should a claim be made against the bond. Taking the time to check your credit, which can be done for free online, is an important step in the process. A credit report from each of three major credit bureaus provides details into your financial past, including payment history, credit utilization, and any negative marks like bankruptcies or liens. You do not have to have perfect credit to get a bond, but it helps to know what you’re working with from the start.
Improve It!
While it is possible to get an HVAC construction contractor bond with less than ideal credit, it helps to improve your credit profile before applying for a new bond. Credit history is impacted by your financial past, and negative entries can drag down your overall credit score. After reviewing your credit reports, work to improve your credit by paying off past due balance and dealing with any accounts in collections. For many, credit reports contain errors through no fault of the individual. When this is the case, disputing erroneous information may eliminate it from a credit report, helping improve your credit profile. The Federal Trade Commission offers guidance on how to dispute errors either in writing or online.
Gather Business Financials
Bond agencies take a close look at your personal financial history, as well as your business financials. Having organized records of assets, debts, and previously completed projects are all beneficial to get bonded. These factors show that you take pride in what you do and are serious as a business owner, giving the surety bond company a higher probability of assisting you with a cost-effective performance or payment bond.
Clear Accounts Receivable
Similar to gathering business financial documents, bond agencies also like to see that you have a handle on who owes you for past work. Having clear details regarding accounts receivable that are outstanding, including the amount owed and when it is or was due is helpful in showing your bonding company that you have a strong financial foundation. Managing accounts receivable is an important aspect of being an HVAC construction contractor, but if this isn’t your forte, there are plenty of resources to make the process less stressful.
Resolve Tax Liens
There are several reasons that tax liens may be part of your financial history, but regardless of the cause, it is important to clear those when possible. Tax liens for HVAC construction contractors are a hard hit on both business and personal finances. They make the surety bond agency think twice about offering a bond that is affordable. Paying the tax lien in full is the best way to clear it from your credit report, and taking special care to avoid tax liens in the future will help ensure your ability to get bonded.
Understand Bond Pricing
Bonds for HVAC construction contractors do not require you as the business owner to pay the entire amount of the bond in full. Instead, the surety company requires only a percentage of the total bond amount as payment. However, the stronger your personal and business financial history, the lower the percentage you will pay for your bond. Percentages typically range from one to ten percent for a contractor license bond so be prepared to pay a higher amount if you have spotted credit or a short business history.
Partner with a Strong Surety Agency
Finally, working with a strong surety bond agency is your best bet in getting an HVAC construction contractor bond that is both affordable and meets your job requirements. A strong surety company works with several different bond issuers, giving you options for bad credit bonds, large bonds, and everything in between. A surety agency that offers some assistance with the claims process should on be filed against you is also a good sign. Take the time to review your surety bond agency options to ensure you are working with one that truly understands your business requirements.
Learn more – Insurance for HVAC Contractors: What It Covers and Why You Need It
