Construction Law

Performance Bond Options for Contractors with Bad Credit featured image

Performance Bond Options for Contractors with Bad Credit

Finding success as a contractor can be difficult when you have lackluster credit. While it’s not impossible to procure performance bonds for public jobs when you suffer from personal credit issues, your ability to procure smaller contracts (valued at $350,000 or less) could be greatly affected. As a contractor, your ability to acquire performance bonds will largely dictate which projects you can work on. If you’re struggling to get bonded or you’ve become the target of a bond claim, a Raleigh contractor attorney from Cotney Attorneys & Consultants can assist you.

In this article, an attorney from our Raleigh construction law firm will discuss contractors’ options for procuring performance bonds with bad credit. Keep in mind that your own experience will depend largely on your unique situation and the particulars of your credit. That said, consulting a Raleigh contractor lawyer can help you plan your contracting business’s next steps when bad credit limits your ability to pursue bids.

Performance Bond Approvals

When it comes to procuring a performance bond valued at $350,000 or less, approval will be mainly based on your personal credit. If your record is marred by items like large collections, past dues, civil judgments, tax liens, bankruptcy, and the like, you may find that acquiring a performance bond is a significant challenge. Therefore, you will more than likely have to take the Small Business Administration (SBA) program route to get bonded. 

This is arguably the most reliable method for small or disadvantaged contractors who suffer from bad credit. However, you will have to furnish the necessary CPA prepared financials in advance. The SBA is going to take a look at the unutilized portion of your bank line to determine the level of liquidity in your bank account. Therefore, you want to boost your line of credit as high as you can since the SBA will view this as available funding. This will help your elevate your bond line. Traditional bonding companies do not equate unused bank lines with available cash, which makes getting approved easier even when you have bad credit. For contractors who have yet to establish a line of credit through their bank, this marks a great opportunity to obtain one. After all, your business will benefit from having cash available from another source when necessary.

What About Larger Projects?

Surprisingly, your personal credit may have less of an effect on your ability to get bonded when working on bigger projects valued in excess of $350,000. You can get bonded with credit problems, but your approval will depend on your ability to produce comprehensive CPA prepared business financials. Furthermore, you will need to be able to demonstrate your industry experience with objective evidence. Your bad credit will still be an obstacle, but an informed CPA may be able to maneuver you past these issues. We also recommend corresponding with a Raleigh contractor attorney during this time to ensure that your legal interests are being considered every step of the way.

If you would like to speak with a Raleigh contractor lawyer, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.