Brent Headley of Anderson & Catania Surety Services explains how relationships with building contractors are built on trust and how a good banking relationship can help establish that trust.
Are bankers friendly to construction companies?
“Interestingly, I have found the banks can sometimes not appreciate the important relationship that their client has with their surety company,” says Brent. He feels this could be because a bank is not entitled to first lien on receivables for bonding projects.
Is surety underwriting substantially different from bank underwriting?
Surety underwriting and bank underwriting are two very different animals. Most importantly, a bank is a secured creditor. Therefore, a bank’s willingness to lend is based simply on the value of the assets of the company or the free cash flow. Surety underwriting is based on the company and personal financial position along with the experience of the contractor (and many other elements). The surety company is considered an unsecured creditor, Brent explains.
Is there a minimum line of credit amount that sureties require to obtain an aggregate bond program?
Certainly, a surety company wants to see a bank line in place.
“I always advise my contractors to secure the highest line value possible regardless of whether they use it or not,” says Brent, adding “again, the bank line of credit loan amount is a reflection of a third-party’s underwriting position on the contractor.”
The banking relationship is critical from the standpoint that it gives the underwriters an idea of how someone else feels about that contractor.
Someone who is maybe close in the community, who has known the contractor for quite some time.
I always tell my clients that it is so critical to get the best line, the largest balance of a bank line, you can possibly get because it’s a reflection of how that underwriter and that bank feels about you.