Getting Smart on Surety Bonds: African-American Female Business Owner in St. Louis Got Funded.
When I quit my job with the post office to start a building maintenance company that specialized in big public buildings, I knew I would have to be good. Better than the big companies that were already doing it. What I didn’t know almost killed my compnay: I needed bonding and working capital and was told it was impossible for me to get it because I was a new business and had no credit. But I found it. And I thought this information might be useful to other minority entrepreneurs.
There is nothing wrong with being dumb. That’s how all smart people start out.
In my case, I was dumb enough to quit a lifetime-guaranteed job with the government to start my own business.
I was dumb enough to think, as an African American woman, I could compete with huge corporations for government contracts. And I was dumb enough to think that once I got the job, I could do it well.
Like a lot of smaller contractors, I smartened up. Fast. Turns out I was smart enough after all.
But one thing that lots of business people never really smarten up about is getting a surety bond. To do a government job -- my first -- I needed a bond. Who knew?
Not the insurance companies. They told me I could not get a bond because my company did not have a good credit score. Turns out that surety bonds and completion bonds and other bonds are not really insurance. They are more like lines of credit.
Here’s why: If a contractor does not finish a job, the bonding company has to step in and make it right. Then the bonding company can turn around and pursue the original contractor for reimbursement.
If bonding companies think your credit is such that they cannot recover their losses, they will not issue a bond.
That is what happened to me -- 11 times. There was nothing wrong with my credit: My books were in order. Taxes paid. Vendors happy. Clients too.
I just did not have enough of it to get a bond for a three year contract I had already won.
When I talked to other business people about bonding and working capital, they all said the same thing: Nothing we can do about it. That is just the way it is.
“But wait a minute,” I asked: “All that government stimulus money is supposed to help small businesses. And now you are telling me that most small businesses cannot do government work? That can’t be true.”
Most did not answer. They just shrugged their shoulders and walked away.
The agency with the work gave me an extension but it was not looking good. With two days to go, my agent, Chondra Martin, told me she had a lead: A bonding company that looked past credit scores and looked at your ability to do the work you were contracted to do. That seemed kind of smart.
Soon we were talking with Andrew Wohl at Ox Bonding. He wanted to know about my company and its balance sheet and whether I had any tax liens or other problems. That was all good.
Then we started talking about the job and how I bid on it; why I bid the way I did (I went to the agency and got a copy of the contract from the last time it was up. So I knew what the number was and I told Andrew how I could do the job better, faster, cheaper.)
He got into my grill. And soon I got a bond.
Next think you know the St. Louis Post-Dispatch is doing a story about how this small business owner overcame obstacles to win a job. That of course got me even more clients.
I didn’t know about that either.
Later I had a chance to talk to Robert Berman, co-founder of Ox Bonding and another smart guy. He told me that he started Ox Bonding because when he was a teenager, his father could not get a bond for a bigger government job.
They ignored all his great work. All his references.
“There are so many good companies out there that do great work but who cannot get a bond,” Berman told me. “So we help them with a bond and with working capital. Because on government jobs, sometimes a lot of money goes out before any comes in.”
Berman is not a member of the Little Sisters of the Poor: He is not running a charity.
Ox Bonding manages risk by having the agency issue our checks to them. They pay the workers and the vendors.
“We can even negotiate better deals,” Berman told me. “We will call a vendor and say we can pay you in 30 days, as stated in the contract. Or we can pay you today if we get a discount. Most vendors are happy to negotiate.”
That is pretty smart.
Being the smart person that I am, I detected a flaw in Berman's grand plan for dominating the world of bonding and working capital.
"Once your clients get a bond and do the work, won't that help them get the credit they need to get a bond from one of the big boys, like Zurich?"
"Smart question,” he said. I knew that.
"We do help our clients get better credit. But we also help them with working capital, payroll, and other services. So what we have found so far is that once contractors have been with us for a while, they want to do even more with us."
Even I’m smart enough to know that.