Free Money and Smart Contractors: How COVID Cash Can Build Your Bonding Power (Instead of Just Buying That $100K Pickup)
You’re sitting in your office, staring at a bank statement showing an extra $300,000 from PPP loans and EIDL funding. Your first thought? “Time for that loaded F-350 King Ranch I’ve been eyeing.”
Hold up there, partner.
The COVID government programs just handed you the biggest working capital injection most contractors will ever see. The question is: Are you going to blow it on shiny toys, or are you going to use it like the business-building rocket fuel it actually is?
Here’s the thing about free money — it’s only free if you’re smart enough to make it work for you instead of against you.
The Hidden Workers’ Comp Goldmine You’re Probably Missing
Let’s start with the money you didn’t even know you had. If you used PPP funds to pay employees, you need to classify those wages under workers’ comp code 0012. Why? Because you don’t pay premiums on government money.
Think about it: You’re paying workers’ comp premiums on wages that Uncle Sam funded. That’s like paying property tax on tools the bank gave you for free. It makes zero sense.
Most contractors are hemorrhaging thousands in unnecessary insurance costs because they don’t know this classification exists. Your insurance agent should have told you this, but let’s be honest — half of them were probably learning the PPP rules right alongside you.
Here’s the back-of-the-napkin math: If you used $100,000 in PPP money for payroll and your workers’ comp rate is 8%, you just saved $8,000 in premiums. For many contractors, that’s enough to cover your entire workers’ comp audit adjustment.
This single classification change could fund your next equipment purchase. But most contractors are leaving this money on the table because nobody told them the rules.
When “Free Money” Becomes Real Debt (And Why Bonding Companies Care)
Now here’s where things get interesting — and where a lot of contractors are about to get blindsided.
If your entire profit last year came from PPP money, your bonding capacity could take a hit when renewal time comes around. Why? Because bonding companies need to see that forgiveness letter.
Without proper documentation, they’ll count PPP as debt on your books. That’s like having a $200,000 loan that doesn’t exist dragging down your working capital ratios.
The problem? Banks have been absolutely terrible about providing forgiveness letters. Some contractors are still waiting for documentation on loans forgiven over a year ago. Don’t be one of them.
Get on the phone with your bank today. Demand your forgiveness documentation. More work than ever requires surety bonds, and you don’t want paperwork problems killing your opportunities when everyone else is scrambling for the same projects.
Think of it this way: You wouldn’t frame a house without a foundation inspection. Don’t try to grow your bonding capacity without proper COVID loan documentation.
The Working Capital Injection That Changed Everything
Here’s where the real opportunity lies, and where smart contractors separated themselves from the pack.
EIDL loans gave contractors access to what I call “stupid money” — 3.75% interest over 30 years. When’s the last time your bank offered you unsecured working capital at less than 4%? Never, that’s when.
The brilliant contractors understood what this really was: permanent working capital, not emergency cash. They took that money and used it to build bonding capacity, not buy toys.
Here’s the bonding magic: Only 12 months of EIDL payments count against your working capital for bonding purposes. So if you borrowed $300,000 at 3.75% over 30 years, your annual payment is roughly $16,000. That means bonding companies only see $16,000 in annual debt service against $300,000 in working capital.
Some contractors got multiple rounds totaling $600-700,000 in cheap, long-term capital. The smart ones used it to scale their operations and chase bigger projects. The others? They’re still making payments on trucks that are already losing value.
How Bonding Companies Actually View Your COVID Cash
Here’s a counterintuitive truth that might surprise you: Don’t hide government money from your bonding agent.
I’ve seen contractors try to downplay their COVID funding, thinking it makes them look desperate or unstable. That’s like hiding tools from your crew because you’re embarrassed you got a good deal on them.
Bonding companies actually love seeing increased working capital from these programs. They understand that government money beats expensive bank loans for cash flow. They know you didn’t get this funding because you were failing — you got it because you knew how to work the system.
What impresses underwriters more than the cash itself? Having a clear plan for using it. Show them you’re using that capital to grow bonding capacity, chase bigger projects, or build strategic reserves. That’s the conversation that gets you increased bonding limits.
Remember: Bonding agents understand that smart contractors took advantage of every program available. It shows business acumen, not weakness.
The Employee Retention Credit: Big Money with Bigger Rules
Now let’s talk about the ERTC — potentially the biggest cash injection of all.
The Employee Retention Credit can return up to 70% of wages as free government money. We’re talking serious cash here — some contractors have received six-figure refunds.
But here’s the catch: Most construction companies didn’t qualify because they could keep working. Unlike restaurants or hotels that were forced to shut down, most contractors stayed busy throughout the pandemic.
However, if you started a business after February 2020, special startup provisions may apply. This is where things get interesting — and where you need to be extra careful.
I’m seeing CPAs push ERTC claims without properly verifying qualifications. That’s like bidding a job without seeing the plans. It might work out, but when it doesn’t, the consequences are severe.
Don’t chase ERTC money unless you genuinely qualify. The IRS is already starting to audit these claims aggressively, and the penalties for false claims make any potential benefit look like pocket change.
Don’t Waste the Opportunity: From Government Cash to Growth Capital
Here’s the bottom line: This was the biggest working capital injection most contractors will ever see.
You had two choices with this money:
Option A: Buy that loaded pickup, upgrade the office, take the family on vacation, and generally treat government money like found cash under the couch cushions.
Option B: Use it to scale your bonding capacity, chase bigger projects, build strategic cash reserves, and turn temporary government assistance into permanent competitive advantage.
The contractors who chose Option B got a huge leg up on the competition. They increased their bonding limits, took on larger projects, and built financial strength that will serve them for decades.
The contractors who chose Option A? They’re making payments on depreciating assets while their competitors eat their lunch on the big jobs.
Think about it this way: That $100K pickup will be worth $60K in three years. That same $100K invested in bonding capacity and business growth could generate millions in additional revenue.
The Bottom Line: Smart Money vs. Stupid Money
The COVID government programs were like finding a construction site with free materials scattered everywhere. The smart contractors filled their trucks. The others complained about having to pick it all up.
But here’s what separates the truly brilliant contractors from the merely lucky ones: What you do with the materials after you load them up.
You can use free lumber to build a storage shed in your backyard, or you can use it to frame houses that generate revenue for decades. The choice — and the opportunity — is entirely yours.
If you grabbed government money and used it to build bonding capacity, chase bigger projects, and strengthen your financial position, congratulations. You just got a masterclass in turning temporary assistance into permanent competitive advantage.
If you used it to buy toys and lifestyle upgrades, well… at least you got some nice trucks out of the deal.
Want to hear more about turning government programs into growth capital? Listen to the full episode of the Contractor Success Forum at https://contractorsuccessforum.com/ or subscribe on YouTube, Spotify, or Apple Podcasts.
Need help maximizing your COVID money for business growth? Contact Wade Carpenter, CPA at Carpenter & Company CPAs (https://carpentercpas.com) for strategies that build bonding capacity instead of just building your toy collection.