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"It is important as a public works contractor to partner with a well seasoned bond agent. The Bond Exchange has played a key role in the success of my business for the past decade. The level of service they provide is unmatched. I would recommend their services any day of the week."
Ali Navi, President
AMD Construction Group
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Bank Lines of Credit, Their Benefits and How they Affect you Surety Bond Capacity
Establishing a bank line of credit can have a positive impact on many aspects of contractor’s business. First and foremost, maintaining a solid banking relationship is critical to the current and future success of most companies, especially in today’s changing and often challenging economic environment.
The construction industry is one characterized by inherent intricacies and challenges when considering cash flow. It is not uncommon that uncontrollable restrictions in cash be experienced by a contractor due to payment delays by the contracting entity, other past due receivables, project delays or disputes and withheld retentions. Bank lines of credit can be a useful bridge in weathering such conditions.
With regard to the surety underwriting process, bank lines of credit can be a valuable off balance sheet asset. They can be a powerful negotiating tool under many bonding related circumstances inclusive of the following:
- In times where a contractor is seeking surety support relative to an aggressive corporate growth strategy
- Under circumstances where their single job and aggregate bonding capabilities are being significantly challenged and/or surpassed
- A particular project a contractor wishes to pursue presents surety support obstacles
Surety underwriters understand the rigorous qualification process a contractor might encounter when securing a bank line of credit. Contractors that have gone through the process of obtaining a bank line of credit often witness positive surety underwriting results for doing so. It is important to understand that bank line usage, from an underwriting perspective, should be viewed as a backup facility and be utilized under conditions where there are few other alternatives. The prompt and continuous pay down of the bank line usage is also highly recommended. Should bank line draws be excessive, the contractor may be interpreted by underwriting as being in a weak overall financial position.
Given the unpredictability of the many outside factors that can affect a contractor’s day to day financial operation and cash flow, the procurement of a bank line of credit is simply a wise business decision. In essence, the security a bank line of credit offers a contractor greatly outweighs the costs associated with its maintenance.
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