How to Enhance Chances
If you’re a contractor and you rely on surety credit, you can obtain the credit you need. It is important to prepare complete and timely information about your business and plans. It is also vital to create adequate profit associated to your type of business and amount of work accomplished. It is necessary to maintain risks related to your industry and obtaining the right insurance.
Paid-in Funds
If you don’t have enough finances to obtain a NY Bond Line , you should consider introducing extra paid in capital to the company. However, if capital is from outside or from new investors, current ownership will be reduced. Excess paid in funds may be locked and double taxed if it is paid out as a dividend for a C tax paying contractor.
Subordinated Debt
In place of excess paid in funds, a NY Surety Company will consider shareholder loans as a long term accountability as well as a ‘capital’ analogous if loans are subordinated to the NY Surety. This is if we assume the shareholder has the capital to loan a company and or can accumulate capital from other areas such as a mortgage. Subordinated debt is exempt from detrimental taxes and the members who loan the capital are creditors and have first preference if the company claims bankruptcy or is dissolved. The construction company must pay for the interest compensated on the loan and can be counteracted by interest gained on borrowed capital.
Parties
Prior to a subordination transaction, the parties must be aware of the intent and conditions. The parties to the agreement include; the construction company, members giving the loan, and the guarantor. The surety must have received evidence of the promissory note or proof of indebtness and the subordination contract.
Agreement Types
The Surety Association of America, SAA creates the two subordination agreement forms. The forms include the same conditions, but the more general form involves all bonds granted prior to and after the agreement’s effective date. The other form involves bonds for a particular contract.
Important Arrangements
-The group who loaned capital to the construction entity subordinates all privileges and claims in opposition to the contractor in respect of the indebtness to all privileges and claims of the assurances based on any misfortune the surety bears.
-The surety’s deperdition will be compensated in full out of the contractor’s assets prior to any payment is made to the creditor
-The creditor attributes rights and claims to the surety on account of indebtness in the case of a bankruptcy or dissolving of the company.
-Both the contractor and creditor have acknowledged that the indebtness cannot be repaid unless all bonded requirements have been achieved and the bonds have been issued.
-The creditor recognizes that the breach of any requirement in the subordination agreement that property, funds, or advantages given to the creditor in relation with the breach will be held responsible by the creditor for the interest of the surety.
Things you Should be Aware of
Sureties must be aware of many factors when considering subordinated debt to financially strengthen the company.
-Contractor Conduct: performance
-Particular Events
-Source of Capital
-Additional Concerns
For a more information, take a look at ‘Your Resource for Risk and Insurance Solutions’.
If you’re a mid sized construction company located in Manhattan, Brooklyn, Bronx, Queens, Staten Island, Westchester County, Hudson County or Union County and would like some assistance in risk management or have concerns about NY or NJ general liability, feel free to contact Metropolitan Risk Advisory. We will help you find solutions to your NY Surety & NY Bond issues and help you save costs.