MAXIMIZING WORKING CAPITAL: HOW BALANCE SHEET HEALTH INCREASES YOUR BONDING CAPACITY

For many contractors, winning larger and better projects is not about finding work—it is about qualifying for the bonds. Bonding capacity is directly tied to financial strength, and one of the most important drivers of that strength is working capital.

Understanding how working capital impacts surety underwriting can help contractors take proactive steps to improve their financial position and expand their bonding capacity.

Why Sureties Focus on Working Capital

Sureties view working capital as a measure of a contractor’s ability to finance jobs, manage cash flow, and absorb unexpected challenges. While working capital is calculated as current assets minus current liabilities, underwriters place just as much emphasis on the quality of those assets.

Cash, contract receivables, and properly supported underbillings are viewed favorably. Aged receivables, prepaid expenses, and non-operating assets may be discounted or excluded when determining adjusted working capital.

A clean, liquid balance sheet signals reliability and financial discipline—two qualities sureties value highly.

Receivables Management Impacts Bond Approval

Slow-paying or disputed receivables are a common reason bonding requests are delayed or declined. Contractors who bill promptly, follow consistent collection practices, and monitor aging reports demonstrate strong financial controls.

Separating retainage from trade receivables and supporting it with clear contract terms also improves balance sheet presentation and surety confidence.

Work-in-Progress Reporting Matters

Accurate work-in-progress (WIP) reporting is essential to bonding decisions. Excessive underbillings may indicate cash flow pressure, while significant overbillings can raise concerns about future performance risk.

Well-prepared WIP schedules reflect strong project management and reliable financial reporting—both critical factors in surety underwriting.

 Reducing Short-Term Liabilities Strengthens Capacity

High current liabilities reduce available working capital, even for profitable contractors. Managing the current portion of debt and avoiding unnecessary short-term obligations helps preserve liquidity.

When appropriate, restructuring debt into longer maturities can improve balance sheet ratios and bonding potential.

Cash Reserves Build Surety Confidence

Cash remains the most valuable asset on a contractor’s balance sheet. Retaining earnings and building cash reserves demonstrate stability and long-term commitment to the business.

Strong cash positions reassure sureties that a contractor can handle delays, change orders, and unforeseen project costs without compromising performance.

Bank Lines Should Support Operations, Not Replace Capital

Lines of credit are useful tools, but sureties do not view them as working capital. Underwriters review utilization levels, borrowing bases, and covenant compliance when assessing financial strength.

A well-managed credit facility supports growth, but strong internal liquidity remains essential.

Financial Clarity Improves Bonding Decisions

Items such as prepaid expenses, related-party receivables, or non-operating assets can dilute balance sheet strength. Cleaning up these items improves transparency and helps sureties assess true working capital.

Clear, accurate financial statements prepared by a construction-experienced CPA further enhance credibility and speed bonding approvals.

Grow at a Pace Your Balance Sheet Can Support

Rapid growth without sufficient working capital is one of the most common bonding challenges contractors face. Aligning backlog growth with available liquidity helps protect bonding capacity and ensures sustainable expansion.

How SuretyEZ Helps Contractors Succeed

At SuretyEZ, we help contractors understand what sureties look for and how to position their financials for stronger bonding outcomes. From reviewing balance sheets and WIP schedules to aligning growth plans with working capital, our goal is to help contractors qualify for the bonds they need—when they need them.

Conclusion

Bonding capacity is built through disciplined financial management and proactive planning. By strengthening working capital and improving balance sheet quality, contractors can expand opportunities, win larger projects, and build long-term surety relationships.

If you are planning to bid on larger jobs or want to improve your bonding profile, working with a knowledgeable surety partner can make all the difference.