Why This Soft Bond Market Is Your Golden Window to Build Surety Relationships
You’re standing at the lumberyard on a Saturday morning, and the supplier tells you they’re overstocked on premium framing lumber. They need to move inventory, so they’re cutting deals left and right. You’ve got two choices: buy what you need for next week’s job, or load up at bargain prices while the getting’s good.
That’s exactly where we are with the surety bond market right now. And most contractors are walking away with just enough bonds for their current jobs, completely missing the golden opportunity sitting right in front of them.
The Numbers Don’t Lie: Surety Companies Are Flush and Ready to Deal
Here’s something that’ll surprise you: the top 10 surety companies are averaging just 12% losses right now. In bonding terms, that’s like having a crew that shows up on time, works clean, and finishes ahead of schedule every single day.
Why does this matter? Because when surety losses climb above 20%, bonding companies get as nervous as a general contractor watching his best foreman walk off the job. But at 12%? They’re making money hand over fist and looking for places to put it to work.
The big players — Travelers, Liberty Mutual, and CNA — are writing double and triple the premium of smaller companies. That means they’re competing hard for your business, which translates to better rates and higher bonding capacity for contractors who know how to play the game.
This is the polar opposite of what we call “hard markets,” where bonding companies pull their reins tighter than a finish carpenter’s measuring tape. In hard markets, they get picky about who they’ll bond. In soft markets like today’s, they’re actively hunting for good contractors to work with.
What Makes Markets Go From Soft to Hard (And Why You Should Care)
Let me tell you a story about what happens when the bonding world goes sideways. Back in 2001, a little company called Enron collapsed and took $569 million in surety claims with it. That single event triggered a hard market that lasted from 2001 to 2004, squeezing contractors like a vise.
During that period, two major surety companies went belly-up, creating a perfect storm where bonding became about as easy to get as finding skilled framers in a boom market. Rates skyrocketed, capacity dried up, and contractors who hadn’t built relationships during good times found themselves shut out of bigger projects.
The 2008-2010 recession hit our industry hard with contractor bankruptcies, but it didn’t create a true “hard market” because overall losses stayed manageable. The bonding companies had learned their lessons and kept their exposure under control.
But here’s what should keep you up at night: 74% of contractors today report jobs running much longer than expected, with 54% running four months over schedule. That’s not just a scheduling problem — that’s a ticking time bomb for the bonding industry.
The PPP Mirage: When Financial Statements Lie About Your Real Situation
Here’s where things get tricky, and it’s something most contractors haven’t thought through yet. Many companies are showing artificial profits thanks to PPP money still sitting in their accounts. Your fiscal year-end statements might look prettier than a freshly poured foundation, while your current work-in-progress is bleeding red ink like a busted hydraulic line.
Think about it: material supply issues and project delays are creating hidden losses that won’t show up in your financials for years. You might have a $2 million job that looked profitable on paper six months ago, but between steel price increases and labor shortages, it’s now a break-even proposition at best.
Here’s the kicker: bonding companies won’t see the real impact of today’s problems for another 2-3 years. Financial statements are like looking in the rearview mirror while driving toward a cliff. By the time the losses show up on paper, the damage is already done.
But this timing mismatch gives smart contractors a crucial window of opportunity. While your current financials still look good and the market is soft, you can position yourself for the harder times ahead.
Strike While the Iron’s Hot: Building Relationships in Good Times
Let me ask you something: when do you think is the best time to introduce yourself to a new bonding company? When you desperately need coverage for a must-win project, or when you’re flush with work and your financials look strong?
Soft markets are when you establish credibility with new surety companies — not when you’re scrambling for coverage with your back against the wall. It’s like trying to hire a superintendent: you want to build that relationship before you need them, not when your current guy just walked off the job.
Right now, you can show bonding companies you’re doing business the right way: solid backlogged gross profit, money in the bank, and ready to grow. Even contractors with past bankruptcies can find opportunities in soft markets, especially with the right backup story and proper financial controls in place.
The surety industry is growing at 6.8% annually through 2037 — these companies are hungry for good business. They need contractors who can perform, and they’re willing to compete for your relationship.
The Foundation You Need: Getting Your Financial House in Order
But here’s the reality check: you can’t just walk into a bonding company with a smile and a handshake. You need the financial infrastructure that proves you’re serious about this business.
Work-in-progress schedules are the grease that makes bonding happen. These aren’t just accounting exercises — they’re your proof that you know where every dollar is on every job. Start building these systems now, while you have time to get them right.
For smaller contractors, credit scoring bonds can get you up to $1 million in coverage even without perfect WIP records. But don’t let that become a crutch. Build the proper systems now, because when you want to break into the $5 million or $10 million project range, they’ll expect to see real financial controls.
Your CPA relationship is crucial here. They need to understand how to present your financials in a way that tells your story properly to underwriters. Not every accountant knows how to speak “bonding language,” so make sure yours does.
And communication is everything. Talk through material issues, timeline challenges, and project complications with both your accountant and bonding agent. Surprises kill bonding relationships faster than change orders kill profit margins.
Don’t Miss the Window
This soft surety market won’t last forever. Smart contractors use good times to build relationships with bonding companies, not just when they desperately need coverage.
Think of it like this: you wouldn’t wait until your excavator breaks down to start shopping for a new one. You’d build relationships with equipment dealers, understand your options, and position yourself to act quickly when the time comes.
The same principle applies to bonding. With losses at historic lows and competition fierce among surety companies, now’s the time to establish your credibility and expand your bonding capacity before the next hard market cycle hits.
Because it will hit. It always does. The question is: will you be ready for it, or will you be scrambling like everyone else when the music stops?
Ready to build those crucial bonding relationships while the market is in your favor? Listen to the full episode of the Contractor Success Forum at https://contractorsuccessforum.com/ or subscribe on YouTube, Spotify, or Apple Podcasts for more strategies to build a more profitable construction business.
Wade Carpenter, CPA, is the host of the Contractor Success Forum and founder of Carpenter & Company CPAs, helping contractors build more profitable businesses. Learn more at https://carpentercpas.com