Surety Bonds for Spray Foam Contractors

By Josh Cotner, CRIS


One of the products and services we at The Contractors Choice Agency, Inc. is surety bonds.  Surety bonds are very common in construction.  Some spray foam contractors need just one license bond and thats it.  Other spray foam contractors never even need one.  Some states don't have a lot of bond requirements.  Others require a bond for each city or parish you go into. 

Why is bonding important?

The reason bonding is important is two reasons.  First you may need a bond to legally operate in your state, city, parish or other municipality.  If you can't get a bond you might not be able to advertise or solicit work.  Second large commercial contracts require performance bonds.  If you are trying to take your business to the next level, and go from six figures to seven, or eight, you need to get bonded. 

I recently did 10 performance bonds for a roofing contractor down in Texas for 10 insurance restoration jobs because of Hurricane Harvey.  They were the only company able to get bonded.  The property insurance company had to require a bond because the projects were large churches and the proceeds were from insurance claims.  I  personally wrote $4,800,000 in performance bonds in 2017.   I have also written hundreds of license and permit bonds for small amounts $5,000-$25,000.

What is a bond?

-It's a third party guarantee!

A bond is a pledge by the surety to another party (the obligee) that a third party (obligor/contractor) will faithfully perform its obligations in a contract between the obligee and obligor.  It’s basically an insurance product that is used to guarantee something.  Bonds provide legal and financial guarantees.  Bonds can be used to guarantee that a contractor will complete a job (performance bond), follow local licensing laws and building codes (license bond), pay a supplier (supplier bond), or complete a job that was permitted (permit bond).  If the obligor(contractor) fails to complete its work or defaults, the surety will evaluate the situation and either step in to complete the project or pay out the obligee’s extra costs to get the work complete up to the limit of the bond (penal sum).  Once a bond payout occurs the surety seeks to immediately recoup their payouts.  

Bonds are normally based off the individual credit score and bond history however smaller license/permit bonds for $5,000-$20,000 are normally instantly approved for everyone because of the amount of money/capital in the markets right now.  License bonds run $50-200 and can be distributed electronically via fax or email to the contractor who in turn executes the bond by signing it and providing to the obligee.  License bonds are common in cities, counties, and states.  Performance bonds are normally used on larger contracts and cost 1-5% of the total amount of the contract.  Because performance bonds involve larger guarantees these bonds always check personal credit.  If you do not have good credit then you might not get approved or the rate will be much higher.  It is good to work on your credit with your bond rep before applying for a bond.  It is a good idea to get preapproved for bonding so you know what amount you can get bonded for and how much it would cost you to get the bond.  This is where having an established relationship with a surety bond expert will help you. 

Why is getting Pre-Approved important?

Imagine if you needed a performance bond at the last minute and the last minute surety company told you yeah we can do it but its 3.5%  but your competition got preapproved for bonding prior to even learning about the project and had found a company to bond them a 1%.  Just the spread on your bond costs could be a hidden competitive advantage in your competitions favor.  Don't allow your competition to get ahead.  Get bonded now.

How do you get bonded?

It is important to get started early.  Get preapproved by your surety company so when that big $1,000,000+ job is requiring you to get a bond-you already have the performance bond ready to go.  If you want to make it big in commercial roofing you need to have bond capacity or the ability to have multiple bonded jobs going on at the same time.  One of my biggest clients needs $15,000,000 in bonding at a time.  It requires him to provide bank statements, tax returns, business financials, and other items in order to have a rolling bond capacity.  Having your financials up to date will help your bond application process quickly.  Cleaning up your personal credit is important.  I love seeing how big a difference I can make in your score.  Sometimes little things like a collection or unpaid ticket weigh your score down.  Removing those black marks from your record can be tricky but it will save you money and make approval a lot easier.

Please let me know if you would like to get preapproved for bonding.

Josh Cotner, CRIS


[email protected]

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