Contractors, business owners, and developers have seen the use of subdivision bonds increase dramatically. Understanding the basics of these subdivision improvement bonds is instrumental to the future of your business and your development projects.
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Here at Pinnacle Surety, we have over 25 years of experience securing the right subdivision surety bond for our clients, even when other companies have failed to obtain the surety bonds on your behalf. We get to know you and your project to ensure we can deliver the service you need. But first, let’s explain the importance of subdivision improvement bonds.
What exactly is a subdivision bond?
Subdivision bonds are a specific type of surety bonds that help cover the owner and/or developer of a construction site. They are also called developer bonds, site improvement bonds, construction permit bonds, performance bonds, site development bonds, municipality improvement bonds, and improvement surety bonds.
A number of political jurisdictions require real property developers to post financial security in order to guarantee the completion of mandatory improvements to public buildings used by the local community. These can include sidewalks, gutters, draining systems, etc. Essentially, the public agency doesn’t pay for the construction. Instead, the developer must pay the cost of the bonded improvements. The owner’s financial security is a required precondition for the obtention of a construction permit. In other words, without a development bond, you are not allowed to develop the business.
What is included in the site development bond guarantee?
The subdivision bond acts as insurance for the government agency, guaranteeing:
The contractor will complete the necessary improvement works within the required time frame.
The contractor has the resources to finance the improvements.
The contractor will maintain the improvements against defective materials and quality for a minimum period after the completion (typically one year or more).
Consequently, the site improvement bond involves three parties:
- The business owner or contractor, aka the principle.
- The government agency that requested the guarantee, aka the obligee.
- The underwriter of the subdivision bond, aka the surety.
How do site improvement bonds work?
As a developer, you need to purchase a subdivision bond to grow your business. The surety agrees to cover the cost of the improvements to the obligee in the event that you can’t complete the work. You, the principal, will then become responsible for the reimbursement of the bond surety.
Acquiring a subdivision surety bond can be a complicated process, which is why not all surety companies provide this service. At Pinnacle Surety, we are proud to say that we are dedicated to supporting business owners and developers with subdivision improvement bonds. As a passionate surety bond agency, we bridge the gap between you and surety companies.
We will work closely with you to understand your projects and your business as we process your application. Our experts review your financial statements, project outlines, funding information, credit checks, and application forms to help you secure the developer bonds you need for growth.
What are the requirements for subdivision improvement bonds?
As explained, your personal credit will affect your access to the subdivision bond. Additionally, we also ensure that we can show you have the financial resources to complete the work. As a rule of thumb, the principle is expected to show evidence of over 1x (1.5x) the amount of the bond in liquid assets. In other words, the principal needs to have a construction loan in place or other financial assets before applying for a development bond.
However, while more and more construction projects require developer bonds, not all do. Municipality improvement bonds are generally part of public projects. So, when your business bids on a public improvement project, securing a bond is likely to be a requirement.
Why choose Pinnacle Surety for your subdivision surety bond
With over 25 years of providing surety solutions, we are confident we can provide the service you need for your site development bonds. We are committed to working on surety bonds, so we have long-established relationships with surety companies all around the country.
But don’t take our words for granted. Instead, see what our clients say about our services:
“I was involved in the entitlement of over 10,000 residential lots before transitioning into home building. I was introduced to Pinnacle and have worked with them in relation to a number of residential housing projects over a number of years. No matter how simple, or how challenging any given project’s bonding needs may be, Eric Lowey and his Pinnacle team always meet our needs efficiently, effectively, and with the utmost professionalism. When it comes to project bonding, I highly recommend Pinnacle.”
“I first met Mark Richardson at an AGC educational event where he was giving a presentation on Analyzing Work in Progress Schedules. Mark has a deep understanding of financial accounting in the construction industry, and we immediately connected. I had been working on increasing RM Mechanical’s bonding capacity. I had interviewed several bonding agents, but unfortunately, I found them all to be very vague when explaining how sureties measure a company’s financial accounting. Mark gave me specific advice regarding how to present our company’s financial statements in a way that would increase our bonding capacity. So we hired Mark! And it didn’t take long to see that we made the right choice. A few months later we requested a bid bond that far exceeded our bonding limits. I felt it was a long shot to get approval. But we told Mark “getting a bond would never stop us from getting a job!” Over the course of a week, Mark spent several hours strategizing with us and we got the bid bond! Mark and his team are a highly professional and dedicated group. They demonstrate to us time and time again that they know how to deliver on the client’s needs.”
Call Pinnacle Surety at (844) 612-7238 and secure your subdivision improvement bond today!