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Up Your Game on Banking and Surety Relationships When Times Are Tough

November 1, 2011 4 Min Read Construction
Mario O. Vicari, CPA
Mario O. Vicari, CPA Retired Director

The current economic environment has placed a lot of strain on construction contractors.  Bid lists are full, margins are compressed, and projects are scarce.  Many contractors have made major adjustments to their cost structures and business models to survive and many companies have endured difficult financial consequences.

During times like these, relationships with banks and bonding companies are more important than ever.  Many contractors mistakenly keep their distance from the bank and bonding company, for fear that they may react negatively to bad news.  We think that is a lost opportunity.

Bank and surety relationships are always important, but especially so in the current environment.  The best-run construction firms view the bank and bonding company as partners in the company’s success along with their outside risk management, legal, and accounting advisors.   When contractors experience challenges, the bank and bonding company can offer valuable assistance in navigating the troubled waters.

At a minimum, they can help you anticipate what you may need to do to maintain important credit and surety lines. They can also share valuable information about what is going on in the markets they operate in.  Banks and bonding companies are more interested in helping their clients than pulling credit at critical times.

Here are some suggestions to bolster this relationship:

  1. Communicate early and often. Banks and sureties are expecting challenges in the current environment.  Increase the frequency of your communications with them so that they understand where you are and what your results look like.
  2. Get ahead of bad news. Address disappointing news early.  Don’t stay silent and deliver bad news when it is too late for the bank and bonding company to adapt and help you through it.
  3. Provide more information, not less. Banks and bonding companies know the environment is difficult, which causes them to have more questions and concerns.  Increase the level of information you provide – both good and bad – so they have a full picture of what is going on at your business and can anticipate what they may need to do to support you with a credit arrangement or a bond.
  4. Avoid surprises. The worst thing you can do is to blindside the bank or bonding company with significant bad news.  They will lose faith in your ability to manage and may question the integrity you bring to the relationship.   Stay ahead in communications on projects and let them know what you are doing to manage through challenges.
  5. Anticipate changes in credit and bonding needs. Let the bank or bonding company know well in advance if your needs are going to change based on current projects.  Don’t make requests at the last minute. Changing bank and surety lines takes more time in today’s markets.
  6. Meet your commitments. It’s always better to under-promise and over-deliver.  When you make commitments or share plans with the bank or bonding company, identify targets that you have a good chance to meet.  If you are going to miss your projections, specify the reasons ahead of time and identify the resolutions.
  7. Stay timely in financial reporting. One of the worst things that can happen is if you fail to deliver financial information to the bank and bonding company in a timely manner.  That causes further concern about your ability to manage through difficulties and makes them wonder if bad news is the reason reporting is delayed.
  8. Upgrade advisors. Consider upgrading your risk management, legal, and accounting relationships with firms that have expertise in construction so the bank and surety know you are getting the best advice to help you through a difficult period.

Mario O. Vicari can be reached at Email or 215.441.4600.

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Mario O. Vicari, CPA

Mario O. Vicari, CPA

Retired Director

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