Anyone who performs contracting work that involves installation, maintenance, or repair of heating, ventilation, and air conditioning systems (HVAC) is required to hold certain certifications and licensing. In order to receive the proper licensing to operate legally, new contractors and technicians must first be bonded. An HVAC construction contractor bond is a critical part of the process, as it provides a type of insurance to customers. Essentially, the bond company provides a guarantee on the work being done by the contractor, and initially, covers any claim against the contractor should the work not be performed per the original agreement. Contractors are not off the hook when claims arise; they are required to then repay the bond agency for any claims it covered for them.
While bonds for HVAC workers and technicians are important, they can be as costly as they are confusing at first. Here are five proved tips for securing a bond as an HVAC construction contractor that makes the process both easy and affordable.
Understand Surety Bond Pricing
One the simplest things you can do to ensure you’re receiving the most cost-efficient bond as an HVAC contractor is to take a moment to understand how bond pricing works in the first place. The cost of a surety bond is represented as a percentage of the bond amount required for a specific job. Depending on the strength of your personal credit and business financial records, the bond price will range from 1 to 10%, with higher prices for contractors with less than ideal financial history. Also, contractors with previous claims history against surety bonds from work performed in the past may pay higher prices for a new bond. Fortunately, there are steps to take to reduce HVAC construction bond prices for future work.
Check Your Credit
Surety bonds are based heavily on a contractor’s personal credit history. This means that any financial mishaps of the past have the potential to work against the pricing of a surety bond. Negative marks like missed or late payments, a bankruptcy or foreclosure, or tax liens or court judgments bring down a credit report and score fairly quickly. Bad credit doesn’t mean you cannot get a surety bond as an HVAC contractor, but it does increase the chance that you’ll pay more for it.
You can reduce the price of your contractor bond by regularly checking your credit and working to improve or eliminate negative marks. Credit reports from each of the three credit reporting agencies can be accessed once per year at no cost. These reports provide a detailed view of your payment history, credit utilization, and overall financial track record. Any errors listed on your credit report can be disputed either online or in writing, which will ultimately improve your score. Being diligent about paying what you owe or clearing up accounts in collections also works to boost your score. Use these tools to improve your contractor bond pricing for future jobs.
Have Records of Business Financials
Alongside your personal credit, bond agencies also may request to see business financial records. This adds another layer of detail about your ability to manage your obligations, and provides a detailed list of accounts receivable (who owes you). With up-to-date business records, bond agencies have a clearer picture of the strength of your business. Most contractors are able to secure a new bond that is affordably priced when this information is provided in addition to personal credit history.
Work with a Strong Bond Agency
Getting the best bond as an HVAC contractor also requires working with a surety bond agency that understands the job requirements and financial obligations that go hand in hand. A bond company with a strong financial rating and a history of working with contractors in your field is a smart place to start. Additionally, agencies that work with several different surety companies is beneficial in ensuring you receive the amount and pricing for the bond that meets your job requirements.
Avoid Claims When Possible
Although a surety bond for HVAC contractors is meant to provide some peace of mind for the customer or owner of the job, claims against the bond can be costly. Not only do contractors have an obligation to repay any amount paid out by the surety bond should a claim be made, but they are also in danger of having more expensive bonds for future work. If your bond company offers claims assistance, work with them when a claim arises. In any case of a potential claim, make a good faith effort to settle the claim before it becomes official with your bond company.
Taking steps to understand HVAC contractor bond pricing and how personal and business financial history play a significant role in securing cost-effective bond pricing for new jobs. Similarly, working with a financially sound bond agency and avoiding claims when possible helps ensure your access to an affordable bond as an HVAC contractor.