Secret #96: Bullies, Banks & Bonding Companies

Growing up I was a tall kid, one of the tallest in my class.  I was taught “don’t get into fights,” sobully sometimes I became a target for shorter, older kids who wanted to push around a big guy.

Now that we’re all grown up, I’m glad to say that’s all behind us… or is it?

Construction companies contractor may feel bullied sometimes, by VENDORS who purport to serve them.  One of them could be the banker.

Banking Relations for Construction Companies
Working capital is important for contractors, especially when starting up a new project.  They may have to work for 45 days or more paying for labor and materials before they receive their first payment under the contract. Bank credit can be a perfect solution for this.

A new contract is an asset for the company, and the bank can rely on this when lending money.  But what happens when the contractor brings the bank a bonded project?  They will refuse to lend against that job!  Their position is that the rights of the surety conflict with their own.

Bonding Relations for Construction Companies
More bullies: Now look at the surety side.  When applying for bonding support, the underwriters ALWAYS ask about banking relations:

  • “Do you have a working capital line?”
  • “How much of it is currently available?”
  • “We want you to have a bank line.  It can help you get through a problem and prevent a bond claim.”
  • “If you are approved by the bank, it helps assure us that you also deserve bonding credit.”

Feel bullied?  No wonder!

The reality is that construction companies may need both bank and surety support.  In order to pursue public work (municipalities, state and federal contracts), surety bonds are mandatory. The surety wants you to have a bank, but the bank doesn’t want to support bonded projects. You can’t win!

The solution is for the contractor to avoid “project specific” lending and seek a general working capital line that can be used at their discretion on any new contract. That’s how to push back on bullies.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

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