In November 2024, we published a blog article titled ‘The Importance of a Bonding Facility for Contractors.’ That article spoke about how contractors are encouraged to secure a bonding facility, which streamlines the process for obtaining essential bonds and enhances their company’s marketability. Our Director of Surety, Kari Davis emphasized that having a bonding facility for contractors saves time. It also saves resources, builds trust with clients, and ultimately positions contractors for greater opportunities. The new year brings new opportunities, as well as the project bidding season. We want to reemphasize the importance of a bonding facility for contracts for business growth and success.

As a refresher, our VP of Construction Insurance, Mike Di Pinto says that ‘a bond is a financial tool that helps businesses like contractors, specialized trades, real estate developers, manufacturers and suppliers, secure work. Even janitorial and cleaning services, importers and exporters, freight and transportation, financial services and government contractors utilize bonds.’ Bonds provide assurance of performance; basically, that obligations like completing work or paying bills will be met. Companies wishing to open doors to more business opportunities should consider a bonding facility, because with a bonding facility, companies can take on more projects while building trust with clients.

What is a Bonding Facility?

A bonding facility is a pre-arranged agreement between a business and a surety company (or an insurance brokerage like Ferrari & Associates that provides surety bonds). A bonding facility allows businesses to obtain the bonds as needed, up to a specific limit.

A Bonding Facility for Contractors is Like a Line of Credit for Bonds

In essence, a bonding facility is like a line of credit you have from a bank. Both lines of credit and bonding facilities are pre-approved, with pre-approved limits. A bonding facility will establish a maximum limit of value of surety bonds that the business can issue (like bid bonds, performance, maintenance or payment bonds, for example). On the other hand, a line of credit from the bank sets a maximum borrowing amount a business can access for its financial needs.

Just like a line of credit that provides continuous access to funds, a bonding facility allows businesses to request bonds as needed, without reapplying each time. A bonding facility reflects the business’ financial strength, credit history, project management capabilities and industry experience. This is like how a line of credit is provided based on financial statements, creditworthiness and collateral, amongst other items of consideration.

When a business takes out a line of credit, it agrees to pay interest on the amount borrowed. Similarly, a business will pay a premium, typically a small percentage of the bond amount, for each bond issued.

Why is a Bonding Facility for Contractors Important?

A bonding facility for contractors opens doors to more opportunities. They help businesses bid on larger projects and meet strict regulatory standards. Without a bonding facility, many companies would struggle to compete in industries like construction or public infrastructure. This is largely because most public infrastructure projects, government contracts and even private sector construction projects require contractors to provide a number of bonds as a precondition for participating. Without the ability to provide all of these bonds, most companies would be ineligible to bid.

A Bonding facility is also important because, as mentioned above, bonds serve as a guarantee that the contractor will fulfill their obligations. Without bonding capacity, a company will appear to be less credible or financially stable, and therefore, may appear to lack the resources or financial backing to handle large projects.

What are the Benefits of a Bonding Facility?

Project owners would rather not worry about potential headaches of working with risky contractors. Therefore, surety bonds show that a business is reliable. In fact, most, if not, all credible project owners would prefer to work with bonded contractors for the increased confidence. But perhaps the largest benefit of a bonding facility is the contractor’s ability to increase its bonding capacity, thus allowing the contractor to take on those larger or complex projects.

In some industries, like construction or mining and energy, for example, bonding is required to meet safety and legal standards. For construction, performance bonds guarantee completion according to the contract, payment bonds ensure subcontractors and suppliers are paid, and bid bonds protect project owners if the winning bidder fails to proceed. For mining, maintenance bonds are required to meet environmental safety standards and ensure compliance with regulations.

How Contractors Obtain a Bonding Facility

Securing a bonding facility involves several steps. Ferrari & Associates empowers contractors like you to strengthen your business. Our bonding specialists will work closely with you to secure a facility tailored to your needs and goals. We offer the support contractor businesses need to pursue larger contracts and grow confidently.

Many bonding facilities offer affordable options for small businesses. Improving financial records and selecting higher deductibles can lower costs. Talk to a bonding expert to explore your options.

How Ferrari & Associates Can Help Secure a Bonding Facility for Contractors

Our  surety team knows that a bonding facility for contractors is actually more than a financial tool. It is an opportunity for a contractor to grow and be successful. By providing continuous surety and trust, a bonding facility enables businesses to thrive. Contractors, especially in construction, benefit greatly from bonding facilities. These tools ensure compliance, reduce risks, and build strong client relationships. If you need help with bonding, please contact us to learn more about bonding facilities and secure your first bond today. Whether you need performance bonds or bid bonds, we’re here to help.

To start the surety quote process, click here.

*The information provided on this page is for information purposes only and should not be taken as insurance advice. For actual insurance advice, please contact Ferrari & Associates at 1-888-467-8989