beginner problem

My father in law has owned/operated his construction company for 30 years. The company has an excellent work track record but in the last few years his health has been failing. With this problem the company owes about $60k-$70k in current debt. It has assets in equipment around $225K. My Father in law's credit is not good(beacon score 450-500). The business had gross income last year around $800k but actually lost money ($22.00 dollars) on paper. I have approached him about buying the business. On his last job $225k the bond company said they would not bond him again with his credit being so poor and that the company does not have a lot of cash. If I buy it with such a lack of experience how would a bond company look at me. I have good credit(beacon around 700) and have about $30k equity in land but no construction experience( I have an excellent business experience over the last 15 years). My father in law is going to continue working but when I get more aquainted with the business (1-2 years) he will pull back on some of the duties. Will they look at my credit and use the company's experience? Or will you laugh ?

[Riskwriter]

Well, good questions all around, however you may not be getting to the root of the problem. Your father in law is not lossing money each year becuase his credit is poor, is credit is poor becuase his business is loosing money!

Any bonding company may look at you as a new owner and say, "wow, great credit, but based on your experience level, you only qualify for a $100,000 bond line"

The company and it's bond line is more determined by the corporate profitability, and net worth. This is why your current surety is shying away. I would say that new ownership may not be your fix...........

Originally Posted by Riskwriter

Well, good questions all around, however you may not be getting to the root of the problem. Your father in law is not lossing money each year becuase his credit is poor, is credit is poor becuase his business is loosing money!

Any bonding company may look at you as a new owner and say, "wow, great credit, but based on your experience level, you only qualify for a $100,000 bond line"

The company and it's bond line is more determined by the corporate profitability, and net worth. This is why your current surety is shying away. I would say that new ownership may not be your fix...........

So are you saying that there is a possibility that a company would still let me bond(up to $100k) even though I have a lack of experience. What kind of percentage would they normally charge in a high risk situation like this? Do you pay that fee as soon as you get the job? How much do they charge for a bid bond? How long is the process to get qualified? Thanks for your help.

It is tough to answer a general question like this when the specifics differ in each case. You plan on buying the business .... how? If your purchase will not affect the balance sheet of the company, that is a good thing. If it utilizes corporate assets to buy out your father, not a good thing. You say it lost money last year, and has little cash.... how were previous years? In other words, is there any net worth to be had? Why the loss? Perhaps it would be better for you to join him in thed business in order to get the experience, and help him turn around the finanicals.
I know the guys on this forum aren't going to like this answer, but you really need to find a member of NASBP in your area and sit down and talk to him about your circumstances.

[Admin]

Originally Posted by Unregistered

I know the guys on this forum aren't going to like this answer, but you really need to find a member of NASBP in your area and sit down and talk to him about your circumstances.

I wouldn't say I don't like it, the purpose of this forum is to help educate and allow principals to obtain free information from surety professionals across the nation. Everyone is welcome to their opinion here.

However, I disagree on two counts, but not entirely.

I personally find little value in the NASBP, just because an agent is a member does not necessarily mean they are a good agent. The agency I use to work for paid thousands for membership and all they got out of it was being able to say they are a member. You may say the membership is what you make of it, but I don't think that makes an agency that without membership unqualified.

I also think that meeting in person is not always necessary. For the majority of companies everything can be done over the phone, fax, and email. Meeting in person does not change the financials, nor will it change the current bond market.

I do agree that it is beneficial to be doing work within a couple hundred miles of your agency if you plan on doing larger jobs. Most bonding companies are still hesitant to allow agents to write larger contracts that are too far away from them. For instance, we are capped at $500K by some of our sureties for states "too far away". I think this will change as the industry becomes more comfortable with technology.

I'm interested to hear your counter thoughts though

[Admin]

Originally Posted by Unregistered

So are you saying that there is a possibility that a company would still let me bond(up to $100k) even though I have a lack of experience. What kind of percentage would they normally charge in a high risk situation like this? Do you pay that fee as soon as you get the job? How much do they charge for a bid bond? How long is the process to get qualified? Thanks for your help.

We can have you approved for a $100K bond line based on the owner(s) personal credit. I can not discuss rates due to the forum rules.

Apply: Under $100K Contract Bond Application

OK - where do I start?

Let's start with NASBP. Since you are not a member of NASBP, of course you are going to say that you find little value in the NASBP. Let me put it this way - there is a far better chance you will find a good qualified bond person at an NASBP memeber agency than just walking into an insurance agency asking for bond information. Perhaps I said that he should find a good professional surety professional to talk to. Having said that, the place I would start is by looking for an NASBP member. Many members do take part in the education process and meetings etc. There is even an unofficial offshoot of NASBP memebers who are bond only agents who meet once a year to discuss their particular problems and situations and the marketplace etc. Surety people who feel the need to continuously keep abreast of the industry

As for meeting in person, I guess it depends. In the case presented, it should be a must. Too many questions and details to do over phone and fax etc. This company needs good competent advise and I am sorry, it takes a sit down at their office to offer the advise needed. The father should be present as well as the son. You say the "meeting in person does not change the financials, nor will it change the current bond market." You are correct, but meeting in person may change future financials and how they play out in the current bond market.

I guess it depends on how you view your profession. And I am not aiming this at you, just in general. Are you in business to write bonds, or are you in business to help people get bonds?

As for the $100,000 program (no matter which one you use) it is a great program for new contractors, contractors rarely needeing bonds, etc. The person writing the note indicated that his father was just finishing a job of around $250,000. So, while the $100,000 program may get them a bond (and remember, it is a $100,000 single and aggregate program) it does not solve their problem or educate them on where they are in relation to what a surety looks for in relation to their surety needs.

Finally, I regarding the following statement:

"I do agree that it is beneficial to be doing work within a couple hundred miles of your agency if you plan on doing larger jobs. Most bonding companies are still hesitant to allow agents to write larger contracts that are too far away from them. For instance, we are capped at $500K by some of our sureties for states "too far away". I think this will change as the industry becomes more comfortable with technology."

I really hope you are wrong. If the surety industry gets that comfortable with technology, eliminating the face to face personal aspect of bonding contractors (I am tlaking contract bonds here, not commercial bonds), you can start thinking about bending over and kissing it all goodbye As it is, too much underwriting is being done by technicians imputting numbers and the program kicking out a "score". I am not talking credit score, I am talking about a surety's own little "score" Above = OK Below = Goodbye.
On the larger risks, the surety needs to count on you being their eyes and ears. Keeping in touch, annual meetings, etc. Thats what makes you the surety professional instead of a surety processor.

OK rambled too much... gotta go visit a contractor.

[Admin]

Originally Posted by Unregistered

Since you are not a member of NASBP, of course you are going to say that you find little value in the NASBP.

Being that we were previous members, we are well aware of what the NASBP has to offer, which we feel is very little.

Originally Posted by Unregistered

As for meeting in person, I guess it depends. In the case presented, it should be a must. Too many questions and details to do over phone and fax etc. This company needs good competent advise and I am sorry, it takes a sit down at their office to offer the advise needed. The father should be present as well as the son. You say the "meeting in person does not change the financials, nor will it change the current bond market." You are correct, but meeting in person may change future financials and how they play out in the current bond market.

Once again, why can't you ask questions over the phone? If an agent has all information required it is rare that a meeting is necessary. That is not saying that our agents are not willing to meet in person. It is quite the opposite...In our experience contractors would much prefer to have it taken care of without having to meet, it saves everyone time. We value our clients time and try to operate in the most effecient manor for both them and us.

Originally Posted by Unregistered

I guess it depends on how you view your profession. And I am not aiming this at you, just in general. Are you in business to write bonds, or are you in business to help people get bonds?

I can't speak for others in the industry, but I know our agents are always giving our clients the best advise possible. If we feel that there is an agency that would be better suited for them, then we simply refer them elsewhere (usually due to location). If you give people solid advice it comes back in referals later on down the line.

Originally Posted by Unregistered

As for the $100,000 program (no matter which one you use) it is a great program for new contractors, contractors rarely needeing bonds, etc. The person writing the note indicated that his father was just finishing a job of around $250,000. So, while the $100,000 program may get them a bond (and remember, it is a $100,000 single and aggregate program) it does not solve their problem or educate them on where they are in relation to what a surety looks for in relation to their surety needs.

It is also a good program for contractors that need a small bond line while they repair their financial situtation. In this particular case we would set them up with the $100K line and educate them on how to improve their situation using the telephone (an older very useful piece of equipment). Let's face it this is all they currently qualify for. If you want to meet with the client and make them believe there are a list of options that aren't actually there then that is your option. However, that is not the way we run our agency. We do all we can for the client, educate them, and meet if they like or if necessary.

Originally Posted by Unregistered

I really hope you are wrong. If the surety industry gets that comfortable with technology, eliminating the face to face personal aspect of bonding contractors (I am tlaking contract bonds here, not commercial bonds), you can start thinking about bending over and kissing it all goodbye As it is, too much underwriting is being done by technicians imputting numbers and the program kicking out a "score". I am not talking credit score, I am talking about a surety's own little "score" Above = OK Below = Goodbye.
On the larger risks, the surety needs to count on you being their eyes and ears. Keeping in touch, annual meetings, etc. Thats what makes you the surety professional instead of a surety processor.

Well as it is right now bond lines are decided on numbers, they always have been. Not all accounts require a visit when it can be done in more time efficient manor using the technology at hand. I agree bond lines should not be decided by a computer program, as each contractor and job is unique. However, our agency values the time of our contractors and we try to operate in an efficent way to save them time. I don't think this makes us "bond processors", we still evaluate each client and take the time to help them understand the process and how they can better their situation. We leave it up to the client with what they would like to do. I will not meet with clients simply to be able to say I meet with all my clients and use it as an advertising slogan.

Sorry, I didn't write any responses yesterday...I was out, meeting with a contractor

Originally Posted by Admin

Being that we were previous members, we are well aware of what the NASBP has to offer, which we feel is very little.

That is unfortunate - I get a lot more out of it than very little. WHile I would agree that to some it was a glorified golf outing, there is a lot to be learned and a lot of contacts to be made at the meetings. You do get out what you put into it.

Once again, why can't you ask questions over the phone? If an agent has all information required it is rare that a meeting is necessary. That is not saying that our agents are not willing to meet in person. It is quite the opposite...In our experience contractors would much prefer to have it taken care of without having to meet, it saves everyone time. We value our clients time and try to operate in the most effecient manor for both them and us.

I don't think contractors consider it a waste of time to have someone willing to work with them. I wasn't kidding or being sarcastic earlier when I said I had to leave for a meeting with a contractor The meeting is a case in point for my point of view. It was with a minority contractor who we have been working with to increase their bonding. At the meeting was the owner, owner's son (future owner) chief operating officer and the CPA A lot was hashed out and ddiscussed and accomplished. We have bonding in place and are well on the way to improving the position at next year end. After the meeting I asked a question because of this discussion on your board. Could we have accomplished this over phone with faxes etc. Every last person said NO
Sorry, sometimes it takes a face to face to let everything out on the table and hash things out But, that is my personal opinion, perhaps not yours.




If you want to meet with the client and make them believe there are a list of options that aren't actually there then that is your option. However, that is not the way we run our agency.

Make them believe there are a list of options.????? What kind of a response is that? When I meet with contractors, it is not to BS them, it is to work with them I am kind of surprised at your unprofessional responce.


We do all we can for the client, educate them, and meet if they like or if necessary.
I will not meet with clients simply to be able to say I meet with all my clients and use it as an advertising slogan.

Another BS responce. No need to comment any further.

Sorry, I didn't write any responses yesterday...I was out, meeting with a contractor

If y ou were out meeting with a contractor, according to your logic, you were out wasting there time and yours.

sorry about that last post .. I guess I have to figure out the quote option on your board .