What is a Performance Bond?
A performance bond is a written assurance or guarantee form provided by a third party (bank or insurance company) and submitted by a principal (Client) to the Contractor in charge of giving the contract.
This guarantee form censored by the third party (bank) is an insurer of the principal who has won the contract to exclusively performs and completes his job in due time, and if he/she is not able to do so, then there is a stated and agreed payment he/she is to pay back to the Contractor. Here is a closer look at performance bonds.
Why Do I Need a Performance Bond?
For every contract I would like to win as a contractor, I need a surety that guarantees that I was a contractor is very much capable of successfully completing a project or contract. This surety backs you up, thereby giving you an edge in every company dishing a contract or a project out.
How Do I Get a Performance Bond Approved?
Getting a performance bond can be very overwhelming at times, being that there are series of forms and information required. Denial of a performance bond after all the time and money spent can be very upsetting sometimes; can even cost you your contract.
So how do you get this closed door opened for you?
In the application of a performance Bond, there are vital qualifications needed. These qualifications encompass Experience, Financial Strength, and Financial Presentation.
‘There’s no best teacher like experience’. For a performance bond to be approved, the financial institution takes a look at your experience level, knowing that this reveals your skills, character and your ability to complete the project. Most times, performance bond are approved to companies with three years experience.
For a company to run smoothly without any hitch and glitch there must be sufficient working capital and a handsome net worth should in case. Financial institutions take the good and close look into this by trying to calculate the limits and capability of your company financially.
For any work to be approved there must be the proper presentation. There is an aligned format mapped by financial institutions, and once your financial presentation is not given a pass mark, no matter how strong your company is financially, you’ll be denied a performance bond.
For example , financial institutions accepts a tax return or a simplified financial report for bonds lesser than a $1million dollars while for bonds above this amount, the financial institution requires a reviewed financial statement from the Contractor, as this tends to increase your level of assurance and also gets you much more qualified for an approval.
Although there are other factors that are needed in earning an approval of Performance Bond, They are Credit scores, Personal assets, Bank line of credit and so on. Though essential, they can’t be compared with the above factors needed in securing a performance bond.