Are You Missing Out on Major Contracts?

If you’re a contractor in Canada and you’ve been told you need a surety bond, you might be scratching your head wondering why this is even necessary. Here’s the reality: Surety bonds aren’t some bureaucratic hurdle; they’re your ticket to the big leagues. We’re talking about a three-party agreement where you (the principal), your client (the obligee), and a surety company create a financial guarantee that you’ll do what you promised.

In construction alone, Canada sees over $141 billion in annual activity, and a huge chunk of that requires bonding. Public projects? Almost always bonded. Large private developments? Increasingly bonded. If you can’t provide surety bonds, you’re automatically excluded from some of the most profitable work available.

I’ve watched contractors transform their businesses once they understood bonding. Take one of my clients, Mike for example. He was stuck doing $50,000 residential jobs until he got bonded and started bidding on municipal work. Last year, he completed a $800,000 road project that generated more profit than his previous three years combined.

At Roughley Insurance Brokers, we’ve been helping contractors navigate the bonding world since 1945. We’re not just order-takers, we’re your partners in growth, with relationships across 15+ surety companies that can open doors you didn’t even know existed.

This guide covers everything: bond types, costs, applications, and real-world strategies that work. By the end, you’ll understand exactly how surety bond insurance can accelerate your business growth and why every serious contractor needs it.

Ready to stop leaving money on the table? Let’s dive in and get you bonded.

What Are Surety Bonds?

A surety bond is a three-way promise. You’re the “principal”, the business that needs to prove you’ll do what you say. Your client or the government is the “obligee”; they’re the ones being protected. And the surety company is like your financial wingman, backing up your promises with their reputation and money.

Here’s what trips people up: Surety bonds aren’t insurance. Insurance protects you from bad things happening. Bonds protect other people from you not doing what you promised. Big difference.

Think of it like this: when you get a performance bond for a construction project, you’re telling the project owner, “I’m so confident I can complete this job that I’m willing to have a third party guarantee it.” If you can’t finish the work, the surety steps in to make things right. But here’s the kicker: you’re still on the hook to pay them back. It’s more like having a wealthy friend cosign a loan than buying insurance.

The purpose is simple: guarantee performance, payment, or compliance. Whether you’re completing a building project, paying your subcontractors, or following licensing requirements, bonds create trust in business relationships.

I worked with a mechanical contractor last year who was nervous about his first performance bond. “What if something goes wrong?” he asked. I told him what I tell everyone: if you’re that worried about completing the project, maybe you shouldn’t be bidding on it. Bonds force you to be honest about your capabilities, which is a good thing.

Common uses include construction projects (obviously), licensing requirements, customs duties, and fiduciary responsibilities. Benefits go way beyond just meeting requirements, bonds build credibility, protect everyone involved, and ensure regulatory compliance.

At Roughley, we see bonding as relationship building. Our job isn’t just finding you a bond, it’s matching you with surety companies that understand your business and want to grow with you.

Types of Surety Bonds in Canada

Not all bonds are created equal, and understanding the differences can save you time, money, and headaches. Let me break down the main categories you’ll encounter.

Contract Surety Bonds

These are the heavy hitters, the bonds that can transform your business from small-time to major player.

Bid Bonds are your entry ticket to serious projects. Typically, 10% of your bid amount, they guarantee that if you win the project, you’ll take it and provide the required performance and payment bonds. I’ve seen contractors lose credibility by submitting bids without proper bid bonds; it screams amateur hour to project owners.

Performance Bonds are where things get real. These guarantee you’ll complete the project according to contract terms, usually 50-100% of the contract value. Sounds scary, but remember, you’re only paying a premium (typically 0.7-1% annually), not the full bond amount. A $500,000 performance bond might cost you $3,500-$5,000 per year.

Payment Bonds (labour and material bonds) protect your subcontractors and suppliers. They guarantee that if you don’t pay your bills, the surety will. This is huge for maintaining industry relationships; nobody wants to work with contractors who don’t pay.

Maintenance Bonds cover you after project completion, guaranteeing you’ll fix defects during the warranty period. These typically last 1-2 years and cost a fraction of the original performance bond.

Supply Bonds ensure the delivery of materials according to purchase agreements. Less common but important for contractors who also supply materials.

Here’s a real example: A concrete contractor was bidding on a $1.2 million hospital parking structure. The project required bid, performance, and payment bonds totalling $2.4 million in coverage. We secured all three through one surety company for about $18,000 annually, less than he typically spent on equipment maintenance. He won the project, and it became his springboard to even larger opportunities.

Commercial Surety Bonds

These serve regulatory and business purposes across various industries, often required by law rather than client preference.

License and Permit Bonds are mandatory for many trades in Canada. Electrical contractors, plumbers, auto dealers, mortgage brokers, the list goes on. These bonds guarantee compliance with licensing requirements and protect consumers from misconduct. Usually smaller amounts ($10,000-$50,000) and relatively inexpensive.

Customs Bonds are essential for importing goods, guaranteeing payment of duties and taxes to the Canada Border Services Agency. With global supply chains, more contractors need these for imported equipment and materials.

Fiduciary Bonds protect beneficiaries when someone manages another’s assets, such as estate executors or guardians. These require careful underwriting since the surety is vouching for someone’s honesty and competence.

Miscellaneous Bonds include auto dealer bonds, janitorial service bonds, and fidelity bonds for employees handling money. Each industry has specific requirements.

I remember working with a small electrical contractor who avoided certain municipal projects because he didn’t have the required license bond. Once we got him set up, $250 annually for a $25,000 bond, he started bidding on municipal work and increased his potential projects by about 30%.

Why It Matters

Different bonds serve different purposes, and understanding this helps you prepare properly and avoid surprises. At Roughley, we’ve developed expertise across all bond types, which means we guide you toward exactly what you need, no more, no less.

Want to know which bonds might benefit your specific business? Give us a call, we’ll walk through your situation without any pressure to buy.

How Surety Bonds Work

The bonding process seems intimidating, but it’s straightforward once you understand the steps. Let me walk you through how it works from application to claims.

The Application Process

Getting bonded starts with the “Three C’s” that surety companies evaluate: Character, Capacity, and Capital.

Character is your track record. Have you completed projects successfully? Do you pay bills on time? Any legal issues or bankruptcies? They’re asking, “Can we trust this person to do what they say?”

Capacity refers to your technical ability and experience. Do you have the skills, equipment, and personnel to handle the projects you’re bidding on? A company doing $100,000 jobs might struggle jumping to $1 million projects.

Capital is your financial strength. Sufficient working capital, good credit, and manageable debt levels. They want to see if you can weather normal business challenges without defaulting.

You’ll submit financial statements (usually three years), a completed project list, bank references, and bond-specific details. The surety may want to see your business plan and meet key personnel.

The Underwriting Deep Dive

This is where experienced brokers really pay off. Underwriters are making a bet on your business; they want to minimize risk while writing profitable business.

I worked with a newer contractor last year whose financials looked weak on paper, but he had strong project management experience and a solid plan. We helped present his application, highlighting strengths and addressing concerns upfront. Instead of a decline, he got approved on reasonable terms.

Underwriters examine work-in-progress schedules, cash flow projections, and how new projects fit existing workload. They might require additional collateral, personal guarantees, or higher premiums for elevated risk.

Bond Issuance and Premiums

Once approved, you pay a premium, typically 0.5% to 3% of the bond amount annually. This isn’t the bond cost itself, but the fee for the surety’s guarantee.

For example, a $500,000 performance bond might cost $3,500 annually (0.7%). Small price for access to projects generating $50,000+ profit.

Claims Process

If project owners believe you’ve defaulted, they can file claims against your bond. The surety investigates; they don’t automatically pay. If claims are valid, they step in to remedy situations. This might mean hiring another contractor to complete work, paying outstanding subcontractor bills, or compensating project owners for losses.

Here’s what surprises contractors: you’re responsible for reimbursing the surety for any claims they pay. This isn’t insurance, it’s a guarantee backed by your assets.

At Roughley, we’ve streamlined this process. We know which sureties work best for different contractors, help prepare applications highlighting strengths, and support you through underwriting. Most applications are approved within 48-72 hours.

Contact Roughley for a smooth application process; we’ll handle the complex parts so you can focus on running your business.

Costs of Surety Bonds

Let’s talk money, because this is probably your biggest concern. The good news? Bonds are usually much more affordable than contractors expect, especially considering the revenue opportunities they unlock.

Contract Bond Pricing

Bid bonds are typically free or nominal, maybe $100-$300. Since they’re temporary (until bid opening), surety risk is minimal.

Performance bonds cost 0.7% to 1% of contract value annually for established contractors with good credit. Payment bonds run slightly less, around 0.3% to 0.5%.

For a $500,000 contract:

• Bid bond: $0-$200
• Performance bond: $3,500-$5,000 annually
• Payment bond: $1,500-$2,500 annually

Commercial Bond Pricing

These vary widely. A $25,000 license bond might cost $250-$750 annually. A $100,000 customs bond could run $1,000-$3,000 per year.

Rate Factors

Your credit score is huge, probably the biggest factor. Contractors with scores above 700 get the best rates. Below 650, you’ll pay significantly more (if you qualify).

Financial stability matters. Strong working capital, low debt-to-equity ratios, and consistent profitability reduce premiums.

Experience and track record play roles. Twenty years of successful projects beats someone just starting out.

Project risk level affects pricing. Straightforward office renovation gets better rates than complex industrial work with tight deadlines.

I had a contractor recently quote 2.5% by another broker for a performance bond. We got him the same bond for 0.8% by placing it with a different surety specializing in his work type. Saved him over $8,000 on a $500,000 project.

Payment Flexibility

Most companies offer annual payments, but we often arrange monthly or quarterly payments for better cash flow. Some sureties offer multi-year terms with locked rates.

At Roughley, we leverage relationships with multiple surety companies to negotiate competitive rates. We’re not tied to single providers, so we shop around for the best fits.

Contact Roughley for a free quote tailored to your business. You might be surprised how affordable bonding can be.

Benefits of Surety Bonds

Surety bonds aren’t just requirements, they’re competitive advantages. Here’s why smart contractors embrace bonding.

Instant Credibility

When you’re bonded, you’re saying a third-party financial institution has vetted your business and is willing to back you. That’s powerful. Project owners know bonded contractors have passed rigorous financial and operational scrutiny.

Access to Bigger Projects

Most public projects and many large private projects require bonding. Without it, you’re automatically excluded. In Ontario alone, public construction totalled over $15 billion in 2022, that’s massive work you can’t bid without proper bonding.

Protection for Everyone

Bonds protect project owners, but they also protect you. When working with bonded subcontractors, you know they’ve been vetted and are less likely to cause problems. Creates more professional, reliable supply chains.

Improved Cash Flow

Counterintuitively, bonding can improve cash flow. Projects requiring bonding often offer more favourable payment terms. When project owners trust you’ll complete work, they’re more willing to provide progress payments.

Building Bonding History

Every successful bonded project builds your resume. Surety companies track performance, and clean records open doors to larger projects and better rates. Like building credit, each successful project makes the next easier.

A concrete contractor we worked with started with $50,000 bonding capacity five years ago. By consistently completing projects successfully and building surety relationships, he now has $2 million bonding facility. That growth directly enabled larger, more profitable projects.

The bottom line? In today’s competitive market, bonding isn’t just about meeting requirements; it’s about positioning for growth and establishing yourself as a serious player.

Partner with Roughley to unlock these benefits for your business.

Challenges and How to Overcome Them

Let’s be honest, getting bonded isn’t always smooth. Here are common challenges and how to beat them.

Challenge: Stringent Underwriting for New/Small Businesses

New contractors face a catch-22: they need bonding experience to get bonded, but need bonds to get experience.

Solution: Start small. Don’t jump from $50,000 to $500,000 projects overnight. Build a bonding resume gradually with smaller bonds, demonstrating reliability.

Focus on strengths. Maybe financials aren’t perfect, but you’ve got 15 years of project management experience or specialized expertise. We help clients tell stories that resonate with underwriters.

Consider alternative structures. Sometimes we secure bonding with additional collateral, personal guarantees, or by partnering with established companies on initial projects.

Our team worked with a young excavation contractor who kept getting declined. His problem wasn’t capability, skilled with good equipment, but his business was only two years old with a limited financial history. We started him with a $25,000 license bond, gradually worked up to larger contracts as he built a track record. Three years later, he has a $750,000 bonding facility.

Challenge: High Premiums for Poor Credit

Poor credit doesn’t automatically disqualify you, but makes things expensive and complicated.

Solution: Be proactive about credit repair before needing bonding. Pay down debt, resolve outstanding issues, and ensure credit reports are accurate.

Be upfront about problems. Hiding financial issues from underwriters backfires; they’ll find out anyway, and dishonesty kills credibility. Better to address problems head-on with explanations and improvement plans.

Work with experienced brokers who know which sureties are flexible with credit issues. Different companies have different risk appetites.

Challenge: Understanding Repayment Risk

Sometimes, contractors focus on getting bonds but don’t fully understand obligations.

Solution: Read the bond language carefully. Different bonds have different triggers and obligations. Know what constitutes default and your responsibilities.

Understand claims processes. If something goes wrong, how quickly must you respond? What documentation will you need?

Know repayment obligations. If sureties pay claims, you’re responsible for reimbursing them plus costs and interest.

At Roughley, we ensure clients understand exactly what they’re getting into. We’ve seen contractors blindsided by obligations they didn’t grasp. Better to understand everything upfront than deal with surprises later.

Reach out to Roughley for help navigating these challenges; most problems can be solved with the right approach and the right team.

How to Get a Surety Bond with Roughley Insurance Brokers

Here’s exactly how the bonding process works when you partner with us at Roughley.

Step 1: Contact Roughley for a Free Consultation

Everything starts with conversation. We want to understand your business, goals, and what you’re trying to accomplish. We’ll ask about typical project sizes, work types, where you want to be in 2-3 years, and what prompted your bonding interest.

This conversation costs nothing with no obligation. We’ve built our reputation on honest advice, even when that means telling someone they don’t need what they initially thought.

Step 2: Prepare Documentation

If bonding makes sense, we’ll walk you through the required documentation:

• Financial statements for the last three years
• Current work-in-progress schedule
• Bank and trade references
• Key personnel resumes
• Specific bond details

We know how to present information in the best light and which details matter most to different surety companies.

Step 3: Submit Application with Roughley’s Streamlined Process

We’ll recommend surety companies most likely to offer competitive terms based on your profile. We prepare and submit applications, ensuring they tell your story clearly and address potential concerns proactively.

Step 4: Underwriting Support Through the “Three C’s”

You don’t navigate underwriting alone. We work with you to respond to questions or requests for additional information.

If underwriters want to meet (sometimes happens for larger bonds), we help you prepare and often participate. We speak their language and help translate concerns into actionable solutions.

Step 5: Fast Bond Issuance (24-48 Hours)

Once approved, we handle all paperwork and coordination. Most bonds can be issued within 24-48 hours of approval, and we often arrange same-day issuance for urgent situations.

We explain bond terms, payment options, and renewal processes. You’ll know exactly what you’re getting and ongoing obligations.

Step 6: Bonding Facility for Frequent Needs

For contractors bidding multiple projects, we help establish bonding facilities, essentially pre-approved credit lines for bonds. This lets you bid confidently, knowing you can secure the required bonding quickly.

Real example: A mechanical contractor needed $600,000 performance bond for a hospital project with a tight deadline, 72 hours to avoid losing the contract. We worked with preferred surety partners, expedited underwriting, and had a bond issued in 48 hours. That speed helped him secure a project generating over $90,000 in profit.

Start the process with Roughley today, we’ll handle complex parts so you can focus on what you do best.

Real-World Experiences with Surety Bonds

Sometimes the best way to understand bonding value is through real examples. Here are stories from our files (names changed for privacy) showing how bonding made a difference for actual businesses.

Construction Example: The $1M Municipal Contract

Mike ran a small excavation company with six employees. He’d done private residential and small commercial work for eight years, but kept seeing lucrative municipal projects he couldn’t bid because they required bonding.

When he finally called us, he was frustrated. “I know I can do the work, but nobody will look at my bid without a bond.” His biggest concern was cost; he figured bonding would eat into thin margins.

We helped him get bonded for projects up to $400,000. The annual cost for the bonding facility was $3,200, less than the equipment maintenance spending. Six months later, he’d won $280,000 road reconstruction project for the city. That single project generated more profit than he typically made in entire quarters doing residential work.

Municipal work was easier on the cash flow. Instead of chasing homeowners for payments, he dealt with professional procurement departments paying promptly per contract terms.

Subcontractor Example: The $50,000 Recovery

Sarah’s drywall company worked as a subcontractor on commercial projects for five years. Solid reputation and steady work, but always nervous about general contractors who might not pay, she’d been burned twice by contractors going bankrupt before paying subs.

When one regular general contractor started requiring payment bonds on all projects, she initially saw it as another hoop. But after working on her first bonded project, she realized protection worked both ways.

Three months later, the general contractor on $150,000 office project ran into financial trouble and couldn’t pay several subcontractors, including Sarah. Because the project was covered by a payment bond, she filed a claim and recovered $35,000 owed. Without that bond, she’d have faced a lengthy legal battle with uncertain results.

Commercial Example: The $10,000 License Bond Credibility Boost

James started a commercial cleaning company and needed various license bonds to work in different municipalities. Young, new business, limited financial history, not an ideal bonding candidate.

We started him with small license bonds in three municipalities, totalling $75,000 coverage for $890 annually. Seemed like a lot for a startup, but opened doors to commercial contracts unavailable to unbonded cleaning companies.

Within 18 months, the business grew to 12 employees and over $400,000 in annual revenue. More importantly, he’d built a bonding history, allowing us to secure larger contract bonds when he decided to bid on facility management contracts.

Startup Example: Building $500,000 Bonding Facility

Roberto’s construction company specialized in industrial projects. He’d been approached about a large project requiring imported specialized equipment from Italy. The project was worth $1.8 million, but he needed a customs bond to import equipment without tying up massive capital in duties and taxes.

The customs bond allowed importing $500,000 worth of equipment while deferring duty payments until after project completion and payment. Without a bond, he’d have needed to tie up nearly $75,000 in cash for duties, money needed for operating capital during the project.

The bond cost $4,200 annually but freed working capital, making the project financially viable. He completed successfully and has used similar structures for three additional projects requiring specialized imported equipment.

Lessons Learned

What these stories share is that bonding opened previously closed doors. It’s not just meeting requirements, it’s positioning your business for growth and protecting yourself in an industry where things don’t always go according to plan.

Each contractor was initially nervous about cost and complexity. But in every case, the investment paid for itself many times over through new opportunities, better cash flow, and increased credibility.

Contact Roughley to achieve similar success stories for your business.

Tips for Success with Surety Bonds

After two decades helping contractors get bonded, here’s what separates those who thrive from those who struggle.

Organize Financials Early for Smooth Underwriting

Clean, organized financial statements are your foundation. Don’t wait until you need bonds to get books in order.

Get financials professionally compiled or reviewed by a CPA. Costs more upfront but signals professionalism to underwriters and often makes a difference between approval and decline.

Keep personal and business finances separate. Mixing expenses makes underwriters nervous, suggesting poor financial controls.

Start with Small Bonds to Build Bonding History

Don’t try going from zero to hero overnight. Start with smaller bonds and build a track record gradually.

Think of bonding like building credit. Each successful project builds a reputation with surety companies and opens doors to larger opportunities.

Be strategic about early bonded projects. Choose projects where you’re confident of success and that showcase your capabilities well.

Read Bond Terms Carefully to Avoid Surprises

Know what constitutes default under specific bonds. Different bonds have different triggers.

Understand claims processes and response obligations. If claims are filed, you typically have a limited time to respond.

Be aware of indemnity obligations. Remember, you’re responsible for reimbursing sureties for any claims they pay.

Maintain Good Credit to Lower Premiums

Your credit score hugely impacts rates. Work on improving scores before needing bonding.

Keep adequate working capital. Surety companies typically want working capital equal to 10-15% of annual revenue.

Avoid maxing out credit lines or operating with minimal cash reserves.

Establish a Bonding Facility for Frequent Needs

For contractors bidding multiple projects, bonding facilities provide pre-approved credit lines for bonds. This lets you bid confidently knowing you can secure the required bonding quickly.

Partner with Roughley for Expert Guidance and Competitive Rates

Choose experienced brokers who understand your industry and can guide you through challenges.

Work with brokers having multiple surety relationships. We represent 15+ companies, giving access to competitive options.

A contractor’s tip from our files: “Start small to build trust with sureties. My first bond was $25,000. Five years later, I have $1.5 million facility. Each successful project made the next one easier.”

Work with Roughley to implement these tips and build your bonding success story.

Ready to Get Bonded?

Roughley Insurance Brokers simplifies the bonding process, offering expertise and tailored solutions developed over nearly eight decades. We understand contractors because we’ve been serving them since 1945.

Take Action Today

Don’t let a lack of bonding hold your business back. The projects you want to bid on won’t wait, and neither should you.

Message us today or call for a free quote. Your next big opportunity might require a surety bond; make sure you’re ready for it.

Frequently Asked Questions

What’s the difference between a surety bond and insurance?

Commercial insurance protects you from unexpected losses. A surety bond protects someone else from you not fulfilling obligations. With insurance, you’re the beneficiary. With bonds, someone else benefits, and you’re still responsible for any claims the surety pays.

How long does it take to get a bond with Roughley?

For routine applications with complete documentation, we often get bonds issued within 24-48 hours. More complex applications might take 5-10 business days. We always work to meet your deadlines.

Can small businesses or startups get bonded?

Yes, but requires more preparation and often starts with smaller amounts. We help small businesses build bonding capacity gradually, starting with license bonds or small contract bonds and growing from there.

What happens if a claim is filed against my bond?

The surety investigates to determine validity. If they pay claims, you’re responsible for reimbursing them plus interest and costs. This is why understanding bond obligations and maintaining good project management is important.

How can Roughley help with underwriting challenges?

We know which surety companies work best for different contractors and situations. We help prepare applications highlighting strengths and addressing concerns proactively. Our underwriter relationships often help find solutions when other brokers get declined.

Get Started Today

Ready to explore your bonding options? Contact us today for a free consultation. We’ll assess your needs, explain options, and provide honest advice about whether bonding makes sense for your business right now.

Your competition is already bonded; shouldn’t you be, too?