What factor usually increases the cost of a surety bond for a contractor?

The cost of a surety bond for a contractor is typically influenced significantly by the contractor's risk profile, with a high-risk profile or poor credit being a primary factor. When a contractor is classified as high-risk, it indicates that they may have a history of defaults, project failures, or other financial issues. This perception of risk leads surety companies to charge higher premiums for bonds.

Surety companies evaluate the likelihood of bond loss when setting their rates, and a poor credit score is often seen as a strong indicator of potential problems in fulfilling contractual obligations. Therefore, contractors needing to secure bonds often find that financial instability or a track record of unsuccessful projects directly correlates with increased bond costs, as surety companies aim to mitigate their own financial exposure.

In contrast, factors like a strong financial track record, a stable project location, or a competent management team typically contribute to a lower perceived risk, resulting in more favorable bond pricing.