How to Renew or Update Your Construction Surety Bond

If you are a building contractor, you need to renew your construction bond every year to stay in compliance and keep your business running smoothly. In case your construction bond is close to expiring, now is the time to start thinking about how to update your construction bond. This article will show you step-by-step how to renew or update your building bond. It will also answer some common questions that contractors have and give you useful advice to make sure the renewal process works efficiently.

What Is a Construction Surety Bond?

Before we start to know the renewal process, let's research what a construction bond is. A construction bond (or surety bond) is a legally binding agreement between three parties: the contractor, the client, and the surety company. It serves as a financial guarantee that the contractor will complete the project according to the agreed-upon terms. If the contractor doesn't do what they agreed to do, the bond makes sure that the client will get their money back.

Construction bonds typically have a one-year term, after which they need to be renewed or updated. If you don't renew your building bond, you could get in trouble with the law, have to delay projects, or even lose future contracts.

Read more: Navigating Construction Surety Bonds: Types, Costs & Coverage Detail

Why Is It Crucial to Renew a Construction Bond?

Renewal of a building bond is necessary for contractors who want to keep working on public projects or even big private developments. If your bond expires, it may not only halt your current project but also prevent you from bidding on future contracts. Most clients, especially in public works, require contractors to provide proof of a valid construction bond throughout the duration of the project.

Also, updating your bond makes sure that you continue to follow state and local rules, which protects your business from potential fines. You can change your coverage if your business has grown or taken on bigger jobs by keeping your construction bond up to date.

How Do I Know If My Construction Bond Is Expiring?

It’s important to track expiration dates of your bond. Typically, the surety company will send you a renewal notice a few months before the bond's expiration. You have plenty of time to either update your building bond or look for other options. Make sure to mark your calendar when the bond is first issued, and set up reminders to avoid last-minute renewals.

Key questions to ask:

• How soon should I renew my construction bond?

You should start the process of renewing your bond at least 60 days before it runs out. This gives enough time for any papers, background checks, and possible changes to the premium.

• What happens if my bond expires before I renew it?

If your bond expires, you may face penalties, contract delays, or suspension of your contractor license. Always aim to renew your construction bond before the expiration date to avoid disruptions.

The Steps to Renewing Your Construction Bond

1. Receive the Renewal Notice 

When your bond is almost up, your security company will let you know. Check your bond's terms to see if they need to be changed. For example, you might need to add more coverage or change the bond amount to reflect the growth of your business.

2. Submit Updated Documentation 

Depending on the surety company, you may need to provide updated financial statements or other business records to show your company’s stability. A lot of contractors use bookkeeping or accounting services to keep their finances in order, which makes the renewal process go smoothly.

3. Undergo a Financial Review 

The surety company may conduct a review of your business's financial health. If you've been keeping up with construction bond compliance and maintaining a good credit score, this process should be straightforward. However, if there are any issues with your financials, the surety might increase your premium or even deny the renewal.

Read more: 5 Ways to Prepare Your Financials for Construction Bonding Approval

4. Pay the Renewal Premium 

Once it's been accepted, you'll have to pay the premium to keep your bond valid. Premiums are usually based on  your business’s revenue, the bond amount, and the risk level associated with your business. Using a reputable bookkeeping service can help you track these costs and make sure you pay them on time.

5. Receive Your Updated Bond 

After payment and approval, you’ll receive your updated bond certificate. Keep this document on file and provide copies to clients if necessary. You’re now ready to continue your projects without any interruptions.

Common Problems During Bond Renewal

Contractors sometimes have problems when they try to update their bonds. Some usual problems and how to avoid them are listed below:

• Poor financial health: If your financial records show inconsistencies, the surety company may either raise your premiums or refuse to renew your bond. Regularly updating your bookkeeping records and consulting with an accountant can prevent this issue.

• Lapsed bond: Missing the expiration date for your bond can cause serious delays and even fines. Make sure to renew your bond well in advance to avoid any lapses in coverage.

• Increased premiums: If your business has taken on more risk or you’ve had issues with previous contracts, your bond premium could increase. You can avoid premium increases by following all the rules and having accurate financial records. 

Read more: 4 Common Financial Issues That Can Impact Bonding for Construction

How Can Bookkeeping Help With Bond Renewal?

Accurate bookkeeping is essential when it comes to renewing your construction bond. Whether you’re providing financial statements to the surety company or tracking your bond expenses, having well-organized financial records will make the renewal process easier.

Hiring professional accounting services can also help contractors avoid common money problems like missing payments or keeping bad records, which can cause the bond renewal process to take longer than planned. Bond terms and premiums are more likely to be better for a worker who is well organized.

In Conclusion 

In the end, remembering to renew your surety bond is very crucial for the success of your construction company. You can make sure the renewal process goes smoothly and on time by following the steps in this guide and keeping good financial records.

In addition, you also could use our construction bookkeeping services to make this process even easier. Our CCA team is an expert in this field, so we can make sure that your financial statements are always correct and up to date, which is the main factor for an effective bond renewal. CCA will help you stay in line with the bond rules and avoid any money problems that could cause delays or higher bond fees. We're here to help you whether you're getting ready to renew your bond or just want to improve your general financial health. Get in touch with us right away to get your finances in order with our great building bookkeeping services.