Q: Sometimes a borrower says they need a line for bonding purpose. How do I know which jobs require bonding per their aging report?
A: Construction bonds are a type of surety bond that protects against disruptions or financial loss due to a contractor's failure to complete a project or failure to meet contract specifications. These bonds ensure a construction project's bills will get paid.
If a particular job requires that a contactor be bonded, it may not appear on the Contract Status Report and, therefore, it may be necessary to contact management regarding which jobs are required to be bonded. Many bonding companies require that a contractor also have a working capital line of credit with the bank.
Although bonded jobs require presentation in Contract Status Reports, it is prudent lending to require a periodic Contract Status Report on all jobs under construction.
Course overview: Analyzing Contractor Financial Statements: Part II of II