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By Travis Yule — CEO & Founder, Full Send Funding
Bonding capacity is a calculation, not just a relationship — and because working capital drives it, a $300,000 facility can cost $3 million of bidding room.
Most contractors think of bonding capacity as a relationship — you have a surety, they know your work, and the limit is whatever they are comfortable with. That is half true and it obscures the half you can actually control. Bonding capacity is primarily a balance sheet calculation, and the single largest input is working capital.
Which produces the fact that surprises contractors most, and the reason this article exists: borrowing money can cost you more bonding capacity than it gives you cash. A $300,000 facility structured badly can remove $3 million of single-job capacity. Structured well, the same $300,000 costs a third of that. The difference is not the rate. It is the term.
The distinction drives everything else.
A lender prices risk. It expects some borrowers to default, sets rates to cover it, and its profit is the spread. Underwriting is about how much loss is acceptable at what price.
A surety does not price risk — it avoids it. A surety bond is a three-party instrument: the surety guarantees to the project owner that you will perform, and you indemnify the surety for anything it pays out. It is not insurance for you; it is insurance for your customer, which you buy and personally guarantee. The premium is a service fee, not a risk pool, and the underwriting standard follows: a surety underwrites to an expectation of zero losses.
That is why a surety asks for things a lender does not — a full personal indemnity, spousal indemnity, a CPA-prepared statement, your work-in-progress schedule — and why it cares so much about a number a lender treats as one input among many.
The traditional framing is the three Cs: character (your record, your reputation, whether you finish), capacity (people, equipment, systems, and experience with this type and size of work), and capital (the balance sheet). Character and capacity are earned over years. Capital moves this quarter, which makes it the lever available to you now.
Sureties size capacity off working capital — current assets less current liabilities — and to a lesser degree net worth. The commonly quoted rules of thumb are roughly ten times working capital for a single job and twenty times for aggregate program size, though both vary widely by surety, by contractor history and by the type of work.
Illustrative. The multiples vary by surety, by contractor history and by type of work — treat them as a starting estimate and ask your agent what yours actually is.
Two things to take from that table.
The multiplier is why working capital is worth more than it looks. A dollar added to working capital is not a dollar of extra bidding room — it is ten or twenty. That asymmetry runs in both directions, which is the whole point of the section after next.
These are rules of thumb, not rules. A contractor with twenty years of clean history, a strong CPA review and a specialty niche may be written well above them. One coming off a loss year, or moving into unfamiliar work, may be written well below, or asked for collateral. Treat the multiple as a starting estimate and ask your agent what yours actually is — it is a question they will answer directly.
Here is where contractors are caught out. The working capital a surety uses is not the number at the bottom of your balance sheet. It is that number after adjustments, and the adjustments fall hardest on construction-specific assets.
General practice rather than any one surety’s schedule. Ask your agent to walk your own adjustments line by line; the adjusted figure is commonly 20% to 40% below the book number.
The retainage line deserves its own note, because it is the largest single adjustment for most subcontractors and it compounds a problem that already exists. Retainage is money you have earned and cannot touch — and a surety, quite reasonably, discounts the portion sitting on jobs nowhere near completion. So the same dollars are unavailable to pay your people and counted at less than face value toward the capital that sets your limit. That is the cost being paid twice.
The practical move is to know your surety-adjusted working capital, not your book working capital, and to ask your agent to walk the adjustments with you line by line. Most will. The number is frequently 20% to 40% below the balance sheet figure, and a contractor who does not know that is planning against a number that does not exist.
This is the part worth reading twice.
Working capital is current assets minus current liabilities. The current portion of long-term debt is a current liability. So every dollar of debt scheduled for repayment within twelve months reduces working capital dollar for dollar — and reduces bonding capacity by ten or twenty times that.
Work it through. A contractor has $500,000 of surety-adjusted working capital, so roughly $5 million of single-job capacity and $10 million aggregate.
Structured over twelve months. The company takes a $300,000 facility repaid within the year. The entire $300,000 is a current liability. Working capital falls to $200,000. Single-job capacity falls to roughly $2 million.
That is $300,000 of cash bought at the price of $3 million of bidding room.
Structured over thirty-six months. The same $300,000, amortized over three years. Only the next twelve months of principal — about $100,000 — is current. Working capital falls to $400,000. Single-job capacity falls to roughly $4 million.
Same money, same cost of capital, and the second structure preserves $2 million more capacity than the first.
Three consequences follow, and they are worth arguing for with any funder:
The honest version of this: if you are bonded and growing, the term of the money is a bonding decision as much as a cash decision. Ask what the facility does to your current liabilities before you ask what it costs. We fund construction working capital on terms from four months to three years, and the three-year end of that range exists for exactly this reason. It is not always the right answer — a longer term costs more in total dollars — but for a contractor whose growth is capped by bonding capacity rather than by cash, it usually is.
If you have already lent money to your own company — most owner-operators have — that shareholder loan is probably sitting in current liabilities and quietly costing you ten to twenty times its value in capacity.
A subordination agreement signed in favour of the surety moves it. The owner agrees not to be repaid ahead of the surety's interest, and the debt is reclassified out of current liabilities, or out of liabilities altogether for the surety's calculation. It costs an attorney's time and nothing else.
The same instrument sometimes works on third-party debt, where a lender agrees to subordinate. It is a bigger ask and not always available, but it is a real one — and it is why a contractor should tell a prospective funder that they are bonded, early, rather than discovering the interaction afterwards.
Beyond structure, the ways to move surety-adjusted working capital, roughly by how fast they act:
Alongside the balance sheet, a surety reads your work-in-progress schedule, and it is looking for a specific pattern: whether your estimates hold as jobs progress.
Fade is the term for a job whose gross margin declines from bid to completion. A contractor whose jobs consistently fade is telling the surety that its estimating or its execution is unreliable — which is a character-and-capacity finding, not a capital one, and it caps capacity in a way no balance sheet fix will lift.
The reverse pattern, margins improving late, gets scrutiny too: it can mean conservative early estimating, or it can mean profit being recognized before it is earned.
Consistent underbilling — costs in excess of billings — says the company is financing its customers. Consistent overbilling is a healthier cash position but can mask a job that will need funding later. What a surety wants is neither extreme and no surprises between periods. What a WIP schedule tells a lender covers how to read your own.
For a contractor whose growth is bonding-constrained rather than demand-constrained:
Most contractors do step 3 first and never do steps 1, 2 or 4.
Bonding capacity is a balance sheet calculation before it is a relationship, and working capital is its largest input — commonly at ten times for a single job and twenty times aggregate. The working capital that counts is surety-adjusted, typically well below the book figure, with retainage and aged receivables discounted hardest. Because the current portion of debt is a current liability, borrowing reduces capacity at that same ten-to-twenty multiple: a $300,000 facility over twelve months can cost $3 million of bidding room, while the same money over thirty-six costs a third of that. Collections, retainage releases and a subordination agreement move the number before any capital is raised — and when capital is the answer, its term matters more than its rate.
If you want to talk through what a specific structure would do to your capacity before you commit to it, call 518-312-0382, or check what you would qualify for — a minute, soft credit pull only.
Bonding practice varies by surety, by state and by contract. This describes how the calculation generally works; your agent and your surety's own underwriting control. It is information, not legal or accounting advice.
Primarily as a multiple of working capital, with net worth as a secondary input. The commonly quoted rules of thumb are about ten times working capital for a single job and twenty times for the aggregate program, though both vary widely by surety, by contractor history and by type of work. Character and capacity — your record, your people, your systems — set whether you are written above or below those multiples.
Most often because surety-adjusted working capital fell. That can happen without any change in your bank balance: taking on short-term debt moves money into current liabilities, a large distribution reduces equity, retainage builds up on jobs far from completion, or receivables age past ninety days. A pattern of margin fade across your work-in-progress schedule can also cap capacity for reasons no balance sheet fix will lift.
Yes, and usually by more than the cash it provides. The current portion of any debt is a current liability, so it reduces working capital dollar for dollar and reduces capacity at ten to twenty times that. A $300,000 facility repaid within twelve months removes roughly $3 million of single-job capacity; the same $300,000 amortized over thirty-six months leaves only about $100,000 current, costing roughly $1 million instead.
It is an agreement that a debt — most often a loan the owner made to their own company — will not be repaid ahead of the surety’s interest. Signing one moves that balance out of current liabilities for the surety’s calculation, which raises working capital and therefore capacity at the multiple. It costs an attorney’s time and nothing else, and it is one of the fastest ways to increase bonding capacity.
No, and the difference drives everything. Insurance spreads risk across a pool and expects losses. A surety bond guarantees your performance to the project owner, and you indemnify the surety for anything it pays out — so it is insurance for your customer, which you buy and personally guarantee. That is why a surety underwrites to an expectation of zero losses and asks for things a lender does not.
In order of speed: collect aged receivables and unreleased retainage; subordinate any shareholder debt; refinance or restructure current debt to terms beyond twelve months; retain profit rather than distributing it; and, slowest but largest, inject capital. Then take the new numbers back to your agent — the limit is not automatic, and somebody has to ask.
Whether your estimates hold as jobs progress. Consistent margin fade — gross margin declining from bid to completion — tells a surety that estimating or execution is unreliable, which caps capacity for reasons a balance sheet fix cannot address. Consistent underbilling says the company is financing its customers. What a surety wants is neither extreme and no surprises between periods.
Yes, early. The structure of a facility interacts directly with your bonding capacity, and a funder who knows you are bonded can propose a term that protects it. Discovering the interaction after signing is the expensive version.
Travis Yule founded Full Send Funding in 2021 and leads it from Middle Grove, New York. He writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.