Why do lenders look at a paving company’s bonding capacity?
Bonding capacity shows how much work a surety company will stand behind for the paving business. Lenders read it as an outside opinion of the company’s finances, track record and management. A weak or shrinking capacity can signal problems and limit the jobs you can bid.
Paving firms often need bonds to bid on larger public jobs. A surety company looks closely at the owner, the financial statements, the work in progress and the equipment before it agrees to back a company. A lender sees that same scrutiny as a useful check from someone with money at stake.
As a buyer, ask what the current capacity is, when it was last reviewed and whether it has moved up or down. Ask whether it is tied to the seller’s personal guarantee, because that may not carry over to you. Your lawyer can explain how that works for a change of owner.
Also ask which jobs the company could not bid because of the limit. A small limit can cap growth even when the crew and equipment are ready. Look at how the paving fleet is financed, since heavy debts can reduce what a surety will support. Talk to your accountant and a bonding specialist before assuming the capacity transfers to you. Ask the seller for any correspondence from the surety about renewals or concerns. A warm, long relationship with a surety is a good sign, while sudden requests for more security deserve a closer look and a direct question to the seller.
Key takeaways
- Ask for the current capacity and how it changed lately.
- Find out whether the seller’s personal guarantee backs it.
- List the jobs the company missed because of the limit.
Related reading
12 pages on the same subject, grouped by topic.
Financing
- Expert answerHow can a lender view an HVAC company’s service contract revenue?
- Expert answerHow should I explain a renovation company’s work in progress to a lender?
- Expert answerWhat records help a lender understand a pool service company’s routes?
- Expert answerCan a lender see a cleaning company’s equipment as security for the loan?
- Expert answerWhat should a lender see about a moving company’s seasonal cash flow?
Buying
- Expert answerHow do I assess a florist’s cooler capacity and flower waste?
- Expert answerDoes a pest control company’s customer cancellation pattern show a problem?
- Expert answerHow can I check an HVAC company’s dependency on one equipment brand?
- Expert answerHow can I learn if an HVAC company’s technicians hold their own customer relationships?
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentWhat are financial statements?
- 03Business Development Bank of CanadaGovernmentEquipment valuation: How to do it
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.