Preparing your company for a bonding line increase

Every surety has its own method. The multiples below are invented for the example and are not a rule.

Start with a conversation, not a request

Meet your surety producer early in the year and ask two questions: what limits would the surety need to see to support the work you want, and what in your current file holds them back? The answers are specific to you. Common ones are thin working capital, a statement level the surety considers too light for the size you want, a WIP schedule that does not tie to the books, or a jump in job size that is too steep.

The bonding capacity guide explains single job and aggregate limits and the character, capacity and capital that underwriters weigh.

The decision that moves the numbers most

Profit left in the company builds working capital and net worth. Profit taken out does not. An invented contractor at year end, before owner draws:

• Current assets $1,400,000, current liabilities $900,000, so working capital = 1,400,000 - 900,000 = $500,000
• Profit for the year after tax: $180,000, still in the company as cash

Two choices for the owners:

Check: the difference in draws is 100,000, and 100,000 x 10 = 1,000,000, which is the gap between the two aggregate figures.

Each dollar left in is worth several dollars of bonded work on these terms. That is why sureties notice large draws, and why some contractors plan their draws around the bonding they want next year.

What an underwriter may take out

Underwriters often adjust the statement before they apply any multiple. Common adjustments include receivables that are very old, loans from the company to its owners, and assets that are hard to turn into cash. In the example, if $90,000 of receivables are more than 90 days old and the underwriter sets them aside:

• Adjusted working capital: 630,000 - 90,000 = $540,000
• Adjusted aggregate at 10x: $5,400,000. Check: 6,300,000 - 900,000 = 5,400,000.

Collect old receivables before year end, or be ready to show they are good. If owners have lent money to the company, the surety may ask for those loans to be subordinated, so they stand behind the surety and count more like equity. The financial ratios guide works the current ratio and debt to equity the underwriter reads alongside working capital.

A twelve-month plan

• Months 1 to 2. Producer meeting. Agree on the target limits and what the surety wants to see.
• Months 2 to 4. Fix the WIP schedule so it ties to the books every month. Re-estimate cost to complete honestly on every job.
• Months 3 to 9. Grow job size in steps. A job about the size of your largest completed one, done well, is the strongest case for the next step.
• Month 6. Send an interim statement and WIP, even if not asked. No surprises at year end.
• Months 9 to 11. Plan the draws. Collect old receivables. Confirm the bank line will renew, and keep it mostly unused at year end.
• Month 12 and after. Year-end statement at the level the surety asked for: compilation, review or audit. Get it to the producer quickly; stale numbers slow everything down.

Your entity and ownership structure also affects whose indemnity the surety wants and how profit flows to owners. Business entity choices covers the basics; talk to your CPA before changing anything.

What to bring when you ask

• Year-end and latest interim statements, with the WIP schedule and notes
• A completed jobs list with contract amounts and the gross profit you bid against the gross profit you earned
• The job or jobs you want to bid, with size, owner, schedule and your plan to staff them
• Bank line terms and current use
• A short note on anything unusual in the numbers, before you are asked

Rough the numbers yourself

The free bonding capacity estimator applies multiples you enter to your working capital and net worth for a rough single job and aggregate figure. It is a planning aid; only the surety sets your limits.

Where this sits for the exam

The bulletin lists subject areas only. Our reading puts bonds, financial statements and ratios under Procurement and Contracting Requirements, the largest area. Expect definitions and short arithmetic such as working capital and current ratio.

Check yourself

Take the free check. It needs no signup and explains every answer. For the Procurement and Contracting lesson and practice questions with every step worked, see the plans.

Sources

• PSI Candidate Information Bulletin 1458, content outline, updated 7 Jul 2026. Retrieved 5 Nov 2026.
• All figures and multiples are invented and were worked twice. Underwriting methods differ by surety.

FAQ

How do I increase my bonding capacity?

Leave profit in the company, keep the WIP schedule accurate, grow job size in steps, provide the statement level your surety asks for, and talk to your producer well before you need the increase.

Do owner draws affect bonding?

Yes. Draws reduce working capital and net worth, which many sureties use to size limits.

Is there a standard bonding multiple?

No. Each surety sets its own method, and the figures depend on the contractor and the market.