What Surety Companies Look for in a Contractor: A Complete Guide
Winning a construction project is exciting. But for contractors pursuing bonded work, winning the job is only part of the equation.
If the project requires a performance bond, payment bond, or bid bond, the surety company will want to know whether your business is financially and operationally prepared to take on the work.
So what exactly are surety companies looking for?
The traditional answer is the Three C's: Character, Capacity, and Capital. The Surety & Fidelity Association of America (SFAA) identifies these as core areas of traditional surety underwriting, with additional review of the specific project and the contractor's ability to successfully perform it.
That means a contractor isn't evaluated solely on credit score or company revenue. Sureties look at the bigger picture: your experience, financial strength, current workload, management team, past performance, relationships, and the specific project you're asking them to bond.
Understanding what sureties look for can help you prepare before you submit a bond request—and potentially put your company in a stronger position to qualify for larger projects.
What Is Surety Underwriting?
Surety underwriting is the process a surety company uses to evaluate the risk of guaranteeing a contractor's obligations.
A surety bond involves three parties:
Principal: The contractor
Obligee: The project owner or entity requiring the bond
Surety: The company providing the bond
When a surety issues a performance bond, it is essentially standing behind the contractor's contractual obligation to perform.
That's why sureties conduct a detailed review before agreeing to provide bonding.
The SFAA describes contract surety as an extensive underwriting process designed to prequalify contractors for bonded construction work.
For contractors seeking a traditional surety program, the process generally goes beyond a simple application. The surety and bond producer may request financial statements, information about current and completed projects, organizational information, banking relationships, work-in-progress information, and other documentation.
The Three C's of Surety Underwriting
The foundation of traditional surety underwriting is the Three C's:
Character
Does the contractor have a history of honesty, reliability, and fulfilling obligations?
Capacity
Does the contractor have the experience, people, equipment, systems, and resources necessary to complete the work?
Capital
Does the contractor have sufficient financial strength and working capital to support the project?
SFAA specifically identifies Character, Capacity, and Capital as the three major areas evaluated during traditional surety underwriting.
Let's look at each one in more detail.
1. Character: Can the Surety Trust the Contractor?
Character is about much more than whether a contractor has good credit.
A surety wants to understand the people running the company and how they have handled their responsibilities in the past.
SFAA notes that character is a particularly important part of traditional surety underwriting. Sureties may use multiple sources of information to evaluate it.
A surety may consider:
Business history
Owner and management experience
Credit history
Reputation
Past project performance
Relationships with owners
Relationships with subcontractors
Relationships with suppliers
Relationships with lenders
History of fulfilling obligations
Previous bond claims
Litigation or disputes
Financial problems
Communication and transparency
The key issue isn't necessarily whether a contractor has ever experienced a problem.
Construction is complicated, and even experienced contractors encounter difficult projects.
What matters is how those problems were handled.
A contractor who openly explains a past problem and demonstrates what was done to correct it may present a very different risk profile from a contractor who hides problems or provides incomplete information.
Honesty Matters
Contractors should never assume that hiding a financial problem, project issue, claim, lawsuit, or other significant matter will make the underwriting process easier.
It can have the opposite effect.
Being upfront with your bond producer and surety gives the underwriting team an opportunity to understand the circumstances and evaluate the entire situation.
SFAA specifically advises contractors to be open and honest during the character evaluation process.
2. Capacity: Can Your Company Actually Perform the Work?
The second major consideration is capacity.
Capacity asks whether your company has the experience and operational resources to successfully complete the project.
Travelers describes capacity as including the appropriate skill, experience, equipment, and other factors necessary to perform contracts.
A surety may look at:
Previous projects
Similar project experience
Size of previous projects
Types of construction performed
Geographic experience
Key employees
Management team
Equipment
Staffing
Project management capabilities
Current workload
Work in progress
Backlog
Subcontractor relationships
Operational systems
This becomes particularly important when a contractor wants to take on a project significantly larger than anything the company has completed previously.
For example, imagine a contractor that has successfully completed $500,000 projects for years but suddenly wants a $5 million performance bond.
The question isn't simply:
"Has this contractor been in business for a long time?"
The surety wants to know:
"Does this contractor have the experience and organizational capacity to successfully manage a project this size?"
3. Capital: Does the Contractor Have the Financial Strength?
Capital is another major component of surety underwriting.
A contractor can have an excellent reputation and extensive experience, but if the company's financial position is weak, taking on a large project can create substantial risk.
Sureties may review:
Working capital
Net worth
Cash
Debt
Accounts receivable
Accounts payable
Profitability
Cash flow
Bank relationships
Lines of credit
Financial statements
Work in progress
Backlog
Recent financial trends
SFAA notes that sureties analyze a contractor's capital and may request financial documents to evaluate the company's financial position.
Financial strength is particularly important because construction companies often have significant cash requirements before they receive payment for completed work.
A company may be profitable on paper but still experience cash-flow pressure.
That's why sureties don't necessarily look at revenue alone.
Why Working Capital Matters to Sureties
Working capital is one of the most important financial concepts contractors should understand when pursuing bonding.
A contractor may have $10 million in annual revenue, but that doesn't automatically mean the company is financially prepared to handle a large new project.
The surety wants to understand whether the company has enough financial resources to:
Pay employees
Pay subcontractors
Purchase materials
Maintain equipment
Cover overhead
Handle delayed payments
Absorb unexpected costs
Finance work until customer payments arrive
Working capital can therefore play a major role in determining how much work a contractor can reasonably support.
Travelers' construction financial stress testing, for example, considers work in progress, financial metrics, backlog, payment terms, retainage, material and equipment purchases, slow receivables, and changes in project profitability.
This is one reason contractors should not think about bonding capacity as simply a percentage of annual revenue.
4. Your Financial Statements Matter
Financial statements give the surety a much clearer picture of how the business is actually performing.
Depending on the size and complexity of the contractor's bonding program, a surety may request financial statements prepared at a particular level of assurance.
Underwriters may analyze:
Balance sheet
Income statement
Cash flow
Assets
Liabilities
Equity
Working capital
Profitability
Debt
Receivables
Payables
Retainage
Current work in progress
The SFAA identifies annual and interim financial statements, work in progress, cash flow, credit relationships, net worth, and working capital among the information considered during contractor prequalification.
Consistency Is Important
A contractor's financial statements should tell a consistent story.
If revenue suddenly increases dramatically, profitability falls sharply, accounts receivable grow significantly, or working capital changes substantially, the surety may want to understand why.
That doesn't automatically mean the contractor won't qualify.
It means the underwriter will likely want more context.
5. Your Work in Progress
One of the most important areas a surety evaluates is your current work in progress, often referred to as WIP.
A contractor may have completed hundreds of successful projects, but the surety also needs to know what the company is handling right now.
The underwriter may examine:
Current projects
Contract amounts
Costs incurred
Costs remaining
Amounts billed
Amounts collected
Estimated profit
Actual profit to date
Project completion percentages
Potential losses
Change orders
Retainage
Schedule issues
The goal is to understand whether existing projects are performing as expected and whether the company has the resources to take on additional work.
SFAA specifically identifies current work in progress, both bonded and non-bonded, as part of contractor prequalification.
6. Your Backlog
Backlog is another important consideration.
Backlog represents work the contractor has already been awarded but has not yet completed.
A healthy backlog can demonstrate that a company has opportunities ahead.
But too much backlog can create problems.
Consider a contractor with:
$5 million in annual revenue
$1 million in current backlog
Now compare that with a contractor with:
$5 million in annual revenue
$15 million in backlog
The second company isn't automatically stronger.
The surety may want to know whether the contractor has enough:
Working capital
Employees
Equipment
Management
Cash flow
Project management resources
to handle the additional work.
Taking on more work isn't always the same thing as increasing capacity.
7. Your Experience With Similar Projects
Experience matters.
Sureties generally want to see evidence that a contractor understands the type of project it wants to undertake.
For example, a contractor specializing in commercial roofing may have a strong track record in that area.
But if that contractor suddenly wants to take on a large highway construction project, the surety may have questions.
Travelers recommends that contractors carefully consider whether potential projects involve familiar types of work and geographic areas, as well as whether the personnel involved have the necessary experience.
Experience doesn't mean you can never expand into a new market.
It simply means the surety needs to understand how you're prepared to manage the additional risk.
8. Your Management Team
A construction company is only as strong as the people managing its projects.
Sureties may review:
Owners
Project managers
Estimators
Superintendents
Controllers
Key employees
Their experience
Their responsibilities
Organizational structure
For larger contractors, an organizational chart and resumes of key employees may be part of the information provided during prequalification.
A contractor with strong management depth may be better positioned to handle multiple projects than a company where virtually every major decision depends on one owner.
This becomes increasingly important as a company grows.
9. Your Banking and Credit Relationships
Sureties may also consider a contractor's banking relationships.
This can include:
Bank relationships
Lines of credit
Credit history
Borrowing capacity
Outstanding debt
Banking arrangements
Availability of additional financing
SFAA identifies evidence of a bank line of credit and credit history, as well as bank and other credit relationships, among the information considered in contractor prequalification.
A strong banking relationship can provide additional financial flexibility when a contractor is growing.
10. Your Relationships With Owners, Subcontractors and Suppliers
Your reputation extends beyond your company's financial statements.
Sureties may consider your relationships with:
Project owners
General contractors
Subcontractors
Suppliers
Lenders
SFAA specifically identifies these relationships as part of its description of contractor prequalification.
Why?
Because construction depends heavily on relationships.
A contractor who consistently pays suppliers and subcontractors, communicates with project owners, and manages obligations professionally can present a stronger overall profile.
11. Your History of Completed Projects
Sureties want to understand what you've actually accomplished.
That can include:
Largest completed projects
Similar completed projects
Project profitability
Completion history
Types of owners
Geographic areas
Contract sizes
Problems encountered
How problems were resolved
A contractor's track record can help demonstrate whether the company is ready to take on a particular project.
For example, if your company has successfully completed several $2 million projects, that history may be useful when you're seeking bonding for another project of comparable size.
12. Your Profitability
Revenue is important, but profitability matters too.
A contractor could generate significant revenue while consistently producing very small profits—or even losses.
Sureties want to understand whether the company is generating enough profit to support its operations and absorb potential problems.
Underwriters may examine:
Gross profit
Net profit
Profit trends
Profit fades
Project profitability
Historical results
Current WIP profitability
A pattern of declining profitability may prompt additional questions.
On the other hand, consistent profitability can help demonstrate financial stability.
13. Your Ability to Handle the Specific Project
Getting approved for a bonding program doesn't necessarily mean every project will automatically be approved.
There are generally two levels of underwriting:
Company-Level Underwriting
The surety evaluates your overall business and establishes a bonding relationship or program.
Job-Level Underwriting
The surety evaluates individual projects you want to bond.
SFAA explains that after establishing a traditional bond program, each contract bond request goes through job underwriting.
For a specific project, the surety may consider:
Contract amount
Type of work
Location
Owner
Contract terms
Schedule
Subcontractors
Financing
Project complexity
Contractor's existing workload
Contractor's experience with similar work
This means a contractor can have a strong bonding program and still encounter a project that requires additional review.
14. The Contract Itself Matters
Sureties don't only evaluate the contractor.
They also need to understand the contract they're being asked to bond.
Contract terms can introduce additional risk.
SFAA notes that sureties need certainty about their liability and carefully review bond terms and the underlying construction contract when underwriting a project. Changes to standard terms can increase potential costs, extend liability, or increase the risk of contractor default.
That means contractors should involve their bond producer early—ideally before signing a contract with unusual or unfavorable provisions.
A contractor shouldn't wait until the last minute to ask for a bond.
15. Your Geographic Experience
Where you perform work can also matter.
A contractor expanding into a completely unfamiliar geographic market may face new:
Regulations
Labor markets
Suppliers
Subcontractors
Weather conditions
Construction practices
Tax requirements
Project owners
SFAA's contractor prequalification information specifically includes the geographic areas where a company operates.
Again, this doesn't mean a contractor can't expand.
It means the surety may want to understand the plan behind that expansion.
16. Your Business Plan and Growth Strategy
For contractors seeking larger bonding programs, the surety may want to understand where the company is headed.
This can include:
Type of work the company wants
Size of projects being pursued
Geographic expansion
Growth objectives
Profit objectives
Management plan
Continuity plan
SFAA identifies a business plan outlining the type and size of work sought, geographic areas, growth and profit objectives, and management planning as part of contractor prequalification information.
This is especially important when a contractor wants to significantly increase its bonding capacity.
What Can Hurt a Contractor's Surety Approval?
There isn't one universal reason a contractor gets declined.
But potential warning signs can include:
Weak working capital
Poor profitability
Excessive debt
Weak financial statements
Significant cash-flow problems
Poor project performance
Excessive backlog
Limited experience
Inadequate management depth
Poor recordkeeping
Unresolved disputes
Negative credit history
Rapid growth without adequate resources
Taking on projects outside the company's expertise
Incomplete information
Inconsistent financial information
The important point is that one weakness doesn't necessarily tell the entire story.
Sureties evaluate the overall risk profile.
How Contractors Can Improve Their Surety Profile
If you're having difficulty qualifying for the bonding capacity you want, there are steps you can take.
Improve Your Working Capital
Retaining more capital in the business can strengthen your financial position.
Improve Profitability
Focus on accurate estimating, job costing, overhead control, and project management.
Keep Better WIP Reports
Accurate work-in-progress reporting gives your surety a clearer picture of your projects.
Build Experience Gradually
Instead of jumping dramatically from small projects to extremely large projects, consider building a track record of successfully completed work.
Strengthen Your Management Team
Develop people who can manage projects independently rather than putting every responsibility on the owner.
Maintain Strong Banking Relationships
Keep communication open with your bank and understand your available credit resources.
Be Transparent
If there is a problem, discuss it with your bond producer rather than trying to hide it.
Involve Your Surety Early
Your surety bond producer can help you understand what information may be needed before you pursue a major project.
SFAA describes the surety producer as an important part of helping contractors establish and manage their surety relationships and bonding capacity.
What Documents Might a Surety Ask a Contractor For?
The exact requirements depend on the contractor, bonding program, and project.
However, contractors seeking traditional surety bonding should be prepared to provide information such as:
Financial statements
Interim financial statements
Work-in-progress schedules
Current backlog
Completed project history
Bank information
Credit information
Organizational chart
Key employee resumes
Business plan
Project information
Contract documents
Information about subcontractors
Other financial or operational documentation
SFAA's contractor bonding education specifically addresses the documents contractors may need during traditional application and underwriting.
Having these documents organized before applying can make the process more efficient.
Don't Wait Until You've Won the Job to Think About Bonding
One of the biggest mistakes a contractor can make is waiting until after winning a major project to start thinking about the performance bond.
If the contract requires bonding, you need to know before bidding whether your company is positioned to obtain the required bond.
A contractor could submit a winning bid and then discover that the project exceeds the company's current bonding capacity.
That's a difficult position to be in.
Instead, talk with your bond producer before bidding on significant projects.
Your producer can help you understand your current bonding position and what may be needed to pursue larger opportunities.
The Bottom Line: What Do Surety Companies Look for in a Contractor?
Sureties aren't simply asking, "Does this contractor have enough revenue?"
They're trying to answer a much bigger question:
"Can this contractor successfully complete the project and meet its obligations?"
That's why traditional surety underwriting focuses on Character, Capacity, and Capital.
Your reputation matters.
Your experience matters.
Your management team matters.
Your financial statements matter.
Your working capital matters.
Your backlog matters.
Your project history matters.
And the specific project you're trying to bond matters.
The stronger the overall picture, the better positioned your company may be to qualify for the bonding capacity it needs to grow.
Need Help Getting Bonded for Your Next Construction Project?
At All American Bonds and Insurance, we help contractors obtain the surety bonds they need to bid and complete construction projects.
Whether you need a bid bond, performance bond, payment bond, license bond, or another type of contractor surety bond, our team can help you understand the requirements and get the process started.
If you're planning to bid on a larger project, don't wait until the last minute to find out whether you can get bonded.
Contact All American Bonds and Insurance today.
📞 844-321-2663📧 info@quickerbonds.com🌐 www.QUICKERBONDS.com
Your next big project starts with being prepared to get bonded.
Frequently Asked Questions
What are the Three C's of surety underwriting?
The traditional Three C's are Character, Capacity, and Capital. Sureties use these areas to evaluate whether a contractor is prepared to fulfill its contractual obligations.
What does a surety company look for in a contractor?
Sureties may evaluate the contractor's character, financial strength, experience, management team, work in progress, backlog, completed projects, banking relationships, reputation, and ability to successfully perform the specific project.
Does a contractor's credit score affect bonding?
Credit history can be part of the overall underwriting evaluation, but surety underwriting typically considers much more than a credit score alone. Financial strength, experience, capacity, character, and project-specific factors can all matter.
How does working capital affect bonding capacity?
Working capital helps demonstrate the contractor's ability to fund operations and handle financial demands while completing projects. A stronger working-capital position can support a contractor's ability to pursue additional work.
Can a new contractor get a performance bond?
Yes, some new contractors may qualify for bonding, depending on their financial position, experience, management team, project characteristics, and other underwriting factors. Requirements can vary significantly by contractor and surety.
Can a contractor with bad credit get bonded?
Possibly. A credit problem does not necessarily mean a contractor can never obtain a bond. The surety may consider the circumstances surrounding the credit issue along with the contractor's financial strength, experience, character, and overall risk profile.
What financial statements does a surety need?
Requirements vary by contractor and bonding program. Traditional underwriting can involve annual and interim financial statements, work-in-progress information, cash flow, credit relationships, and other financial information.
Should contractors talk to a surety before bidding on a project?
Yes. Contractors should understand their bonding capacity before pursuing projects that require surety bonds. Getting the bond process started early gives the contractor and surety more time to evaluate the project and address potential issues.
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