The Three C’s of Surety – Qualifying for a Surety Bond

What are the parameters used for determining if you qualify for a surety bond? This is where underwriting comes in. Underwriting is what the surety company will do when an insurance agent presents a new principal and is the process of determining whether to issue a bond. The three Cs are the foundation of underwriting, and every surety producer should know about them. They represent how principals are pre-qualified.


The first C is Character. The surety looks at the principal’s honesty, integrity, and openness. This is not an easy thing to underwrite. They use the other two Cs to help clarify Character. Part of establishing character is to call references. Has the principal really done a job this size and scope? How did it go? Were there problems on the job, and how were they handled? The Surety producer may also call suppliers and analyze the contractor’s credit report. Does the principal have a history of paying on time? Did they fulfill obligations? The surety company must make sure that a principal will fulfill obligations.


The second C is Capacity, or the ability to perform. Does the contractor have prior experience? Have they performed jobs like this before? This gives the surety a good feeling about the principal and whether they can fulfill the contract and therefore qualify for a bond. Using the performance and payment bond as an example, if a principal applies for a $1 million single job without ever having done a job this size or close to this size before, that could be a problem. A surety company will want to see that the contractor has done jobs in the same size, scope, and location in the past.


The third C stands for Capital. This is the easiest thing to underwrite, but it shouldn’t be the number one thing underwritten. The other two Cs should be considered very seriously. Capital refers to the principal’s financial ability. Do they have the financial wherewithal to perform a $1 million job? Do they have the working capital to start the project? That doesn’t mean the principal must have $1 million in the case above. For traditional Performance and Payment bonds, the principal needs enough working capital to get them through about the first 30 or 60 days before they get their first draw from the obligee.

How does someone get their bond approved?

A scale/balances with capital on one end, character on another, and in the middle is capacity. These terms are used to see if a contractor can qualify for a bond. Applying for a bond is similar to applying for a loan or credit card. If someone applies for a small nonhazardous bond – between $5,000 and $20,000, they may just have to submit an application that includes their name, address, and social security number. However, for a larger loan – and a larger contract bond – the surety company will need a lot more information. The surety company may request questionnaires, resumes, business plans, financial statements, a Work-In-Progress report, bank letter, as well as a credit check. All these underwriting tools help the principal get approved.

To apply for a bond, visit our home page. For more information and answers to any questions, always feel free to reach out to us, or refer to our prior blogs. To follow our company, visit our socials.

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