Changing market conditions have led to changes and adaptations in the surety market. This article updates bankers and lenders on the current situation and trends within that constellation of financial organizations writing bonds for the construction industry.
For a fee, sureties transfer construction risk to themselves, and that is one less risk for bankers to worry about in lending to contractors. On the other hand, if the surety industry finds construction risk returns unattractive, it may have to consider several alternatives–raise premiums, tighten underwriting standards, or exit the bonding business. The net effect is to shift risk back to the lender. If sureties cannot make money writing payment and performance bonds, it is unlikely that bankers will do any better granting lines of credit to needy contractors or issuing letters of credit to supplant the bonding companies. To read more of this article go to: www.moneywatch.com