Why Your "Perfect" Financials Still Get a No from Surety

It’s the most confusing phone call a contractor receives.

You send over your year-end financials. You feel good about them. The balance sheet is rock solid, cash flow is positive, and your debt is low. By every metric a banker would use, you are a safe bet.

Then the surety underwriter comes back with a "pass."

It feels personal, but it isn’t. It’s usually a misunderstanding of what the surety is actually looking for. While a bank looks at your numbers to see if you can pay, a surety looks at your operation to see if you can perform.

If your balance sheet is pristine but you’re still hitting a wall, one of these non-financial factors is likely the culprit.

1. You’re Outdriving Your Headlights (Capacity)

Financials are historical documents—they tell us what you did last year. But a bond guarantees the future.

If your "perfect books" were built on $500k interior renovation jobs, but you’re asking for a bond on a $3M ground-up project, the underwriter gets nervous. It doesn't matter that you have the cash to start the job; they are worried you don't have the infrastructure to finish it.

Underwriters look for a "step-ladder" approach. They want to see you move from $500k to $800k, then to $1.2M. If you try to triple your job size overnight, your financial strength won't save you from the perception that you simply lack the experience for that specific scope of work.

2. The WIP Schedule is Bleeding

Your P&L statement might show a profit, but the Work on Hand (WIP) schedule is the real lie detector.

Sureties look specifically for "Profit Fade."  This happens when you bid a job expecting 15% gross profit, but by the time you reach 90% completion, that margin has slid down to 5%.

If you have a habit of fading profits, it tells the underwriter that your estimating system is broken. Even if you are still making money, the trend suggests you don’t actually know what your costs are until it’s too late. To a surety, that is a ticking time bomb.

3. Your CPA Isn’t "Construction Fluent"

There is a massive difference between "accurate numbers" and "verified numbers."

If you are looking for significant bonding capacity, printing reports out of QuickBooks isn't going to cut it. Sureties generally require a CPA to perform a Review or an Audit (not just a compilation).

Furthermore, if your CPA is a generalist who doesn’t specialize in construction, they might not be using the Percentage of Completion method. If you submit cash-basis financials for a bonding line, you are almost guaranteed to be undervalued or rejected. The surety needs to trust the preparer as much as they trust the contractor.

4. The "Hit by a Bus" Scenario

It’s a morbid conversation, but a necessary one. If you are the owner, the estimator, and the project manager, your company isn't a business—it's just you.

If you were incapacitated tomorrow, who finishes the bonded projects? If the answer is "nobody," or "my spouse who doesn't work in construction," the surety sees unmanageable risk.

It doesn’t matter how much money is in the corporate account if there is no leadership to direct it. Establishing a clear successor and funding a Buy-Sell agreement with life insurance can often flip a "no" to a "yes" faster than an influx of cash.

5. The Contract is Toxic

Sometimes, you’re the perfect candidate, but the project itself is unbondable.

Underwriters read the fine print of the contracts you bid on. If the owner is asking for a 5-year warranty (when the industry standard is one), or if the "consequential damages" clause puts your entire business at risk for their lost profits, the surety will balk.

In these cases, the rejection is actually a favor. They aren't refusing to back you; they are refusing to back a contract that is designed to make you fail.

Don't just look at your bottom line and assume you're bondable. Surety is a credit relationship based on three things: capital (your money), capacity (your experience), and character (your reputation and organization).

If you have the money but are still getting rejected, stop looking at the bank account and start looking at your operations. The red flag is there—you just have to find it.