Overcoming Obstacles to Bonding for Public Contracts
For many small business owners, especially contractors looking to work with cities, counties, or utilities, bonding is a gateway to growth. But too often, it becomes a barrier instead.
Public entities typically require performance and payment bonds before awarding work. These bonds protect taxpayers by ensuring a project will be completed and subcontractors will be paid. However, for small and historically underutilized businesses, obtaining sufficient bonding capacity remains one of the most persistent challenges in accessing public contracts.
Let’s break down why so many companies are under-bonded—and what you can do to change that.
Common Obstacles to Bonding
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Insufficient Financial Documentation
Many bonding decisions come down to paperwork. Contractors need solid financial statements—often reviewed or audited, not just basic tax returns or bookkeeping spreadsheets. Sureties want to see:
- Profit and loss statements
- Balance sheets
- Work-in-progress (WIP) reports
- A clear separation between personal and business finances
Without this documentation, qualifying for larger bonds is nearly impossible, regardless of experience or capability.
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Weak or Limited Credit History
Bonding companies assess both personal and business credit. Red flags like late payments, maxed-out credit lines, or unresolved collections can result in smaller bonding limits or outright denial.
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Lack of Working Capital
Even if your company is profitable, you may be under-bonded if you don’t have enough liquid assets to cushion project risk. Working capital—current assets minus current liabilities—shows whether you can cover short-term obligations without financial stress. Bonding underwriters use this to determine how much risk they will take on your behalf.
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Inexperience With Bonded Work
Underwriters may hesitate to approve higher limits if you’ve never completed a bonded project. It’s a catch-22: You can’t get bonded without experience, or gain experience without a bond. Breaking into this cycle often requires guidance, co-bonding partnerships, or small incremental steps.
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No Relationship With a Bond Agent
Some contractors don’t realize bonding isn’t just about applying online—it’s a relationship business. A knowledgeable bond agent or surety broker can advocate, help package your financials correctly, and connect you with the right underwriter. Trying to go it alone can leave you underqualified and overwhelmed.
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Too Much Debt or Fast Growth Without Planning
Bonding capacity can’t grow faster than your business can handle. If you’re taking on more jobs than your balance sheet can support or relying heavily on credit to fund operations, sureties may view you as high risk. Sustainable growth, not rapid expansion, earns trust in the bonding world.
Why Being Under-Bonded Hurts Your Business
When you’re under-bonded, you’re forced to sit out many public bid opportunities. Even private-sector clients are increasingly requesting bonds as a safeguard. This limits your revenue, slows growth, and keeps you from building a track record of large project delivery.
Being under-bonded also affects your reputation. Public agencies and primes may assume your company isn’t capable or dependable, but you just haven’t had the chance to build your capacity.
What You Can Do to Increase Your Bonding Capacity
Get Bond-Ready
Work with a bonding agent who specializes in small contractors. They’ll help you prepare your application, find the proper surety, and guide you toward manageable starting limits.
Clean Up Your Financials
Invest in professional bookkeeping and accounting support. Ensure your financial statements are accurate, timely, and formatted according to industry standards. Separate your business and personal finances.
Build Your Credit Profile
Work to improve both personal and business credit. Pay bills on time, reduce outstanding debt, and regularly review your credit reports for errors.
Improve Cash Flow Management
Hold onto your profits and build up cash reserves. Substantial working capital is among the most persuasive factors in increasing your bond line.
Start Small, Then Scale
To build your track record, consider smaller bonded jobs—even if they’re less profitable. Document your performance. Each successful project strengthens your case for more capacity.
Final Thoughts
Bonding doesn’t have to be a mystery—or a dead end. With the proper preparation, relationships, and support, small contractors can move from under-bonded to fully prepared for public projects.
Remember, bonding is about trust. The more you can demonstrate competence, transparency, and financial responsibility, the more doors will open for your business.
