What to Expect from Changing Underwriting Report Requirements
The Covid 19 pandemic has created a great deal of uncertainty regarding its effects on construction bond users. Much is unknown regarding what will happen during this crisis as well as once it is over, making it more important than ever to take proactive steps to protect your business and your business relationships.
Some things are predictable. Surety companies can be expected to tighten up their books of business. While doing so, they’re going to be asking for up-front and on-going information in quantities larger than ever seen before. Here are a few pointers to help mitigate the reaction of the bond companies in these unforeseen circumstances.
In the past, an acceptable amount of financial reporting entailed providing six-month and year-end statements. However, we believe that the surety companies are going to be managing their risk with greater scrutiny. It’s going to be more important in the following months to be able to provide real-time information such as monthly Work-in-Progress reports, Cash Balances, Debt, and Performance indications.
Increasing your line of credit immediately is also a very good idea, as the banks will start tightening up as well. Bonding capacity is based on the “three Cs”: a company’s Character, Capacity, and Capital. These aspects provide a foundation for producers and underwriters to form an opinion on a contractor’s past, as well as anticipate current and future performance.
You can also expect shortages of material and labor, so looking for alternative suppliers and crews to help mitigate risk will be a must.
To summarize, you should do the following:
- Prepare for Timely Financial Reporting
- Offer monthly Work-in-Progress Statements
- Maintain a low Debt Position
- Increase your Bank Line of Credit
- Find Alternative Suppliers
- Maintain a strong Cash Position