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💼 Bonding Capacity Calculator

Understand your bonding capacity and what affects it. Essential for contractors who need bonds to win work.

What is Bonding Capacity?​

Bonding capacity is the maximum contract amount a surety will bond for your company. It's typically expressed as:

  • Single project limit - Largest single project you can bond
  • Aggregate limit - Total bonded work you can have at once

Factors Affecting Bonding Capacity​

Financial Strength​

Key metrics:

  • Working capital
  • Net worth
  • Debt-to-equity ratio
  • Profitability trends
  • Cash flow

Typical requirements:

  • Working capital: 10-20% of bond amount
  • Net worth: 5-10% of bond amount

Calculate Your Capacity​

Step 1: Calculate Working Capital​

Working Capital = Current Assets - Current Liabilities

Current assets:

  • Cash
  • Accounts receivable
  • Work in progress (underbillings)
  • Retainage receivable

Current liabilities:

  • Accounts payable
  • Accrued expenses
  • Current debt
  • Work in progress (overbillings)

Step 2: Calculate Net Worth​

Net Worth = Total Assets - Total Liabilities

Or:

Net Worth = Owner's Equity

Step 3: Estimate Capacity​

Conservative estimate:

  • Single project: Working capital × 10
  • Aggregate: Net worth × 10

Typical range:

  • Single project: Working capital × 10-20
  • Aggregate: Net worth × 10-20

Note: Actual capacity depends on many factors. Consult your surety for accurate capacity.

Example Calculation​

Company Financials​

  • Working capital: $500,000
  • Net worth: $1,000,000
  • Debt-to-equity: 1.5:1
  • Profitability: Consistent 3-5% net margin

Estimated Capacity​

Single project:

  • Conservative: $500,000 × 10 = $5,000,000
  • Typical: $500,000 × 15 = $7,500,000

Aggregate:

  • Conservative: $1,000,000 × 10 = $10,000,000
  • Typical: $1,000,000 × 15 = $15,000,000

What Sureties Look For​

Financial Metrics​

  • Working capital - Adequate liquidity
  • Net worth - Strong equity position
  • Profitability - Consistent profits
  • Cash flow - Positive cash flow
  • Debt levels - Manageable debt

Operational Factors​

  • Experience - Track record in similar work
  • Management - Strong management team
  • Backlog - Healthy pipeline
  • Safety record - Good EMR
  • Banking relationship - Strong banking support

Improving Your Capacity​

Financial Improvements​

  1. Increase working capital

    • Retain earnings
    • Improve collections
    • Manage payables

  2. Strengthen net worth

    • Profitable operations
    • Owner investment
    • Retain earnings

  3. Improve profitability

    • Better pricing
    • Cost control
    • Operational efficiency

Operational Improvements​

  1. Build track record

    • Complete projects successfully
    • On time, on budget
    • Quality work

  2. Strengthen management

    • Experienced team
    • Good systems
    • Strong controls

  3. Maintain safety

    • Good EMR
    • Safety programs
    • Training

Types of Bonds​

Bid Bonds​

  • Guarantee you'll enter contract if awarded
  • Typically 5-10% of bid amount
  • Required to submit bid

Performance Bonds​

  • Guarantee project completion
  • Typically 100% of contract amount
  • Required by contract

Payment Bonds​

  • Guarantee payment to subs/suppliers
  • Typically 100% of contract amount
  • Required on public works

Bond Costs​

Premium Rates​

Typical rates:

  • Small projects (under $1M): 1-3% of bond amount
  • Medium projects ($1-10M): 0.5-2% of bond amount
  • Large projects (over $10M): 0.3-1% of bond amount

Factors affecting rates:

  • Financial strength
  • Experience
  • Project type
  • Project size
  • Surety relationship
Build Capacity Before You Need It

Start building bonding capacity before you need it. Strong financials and track record take time to develop.