How to Buy a Construction Company and Keep Its Bonding in 2026
by Raises.com
This article is general information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.
A construction company is bought on what a lender and a surety both read: the bonding program, the work in progress, and the people who hold the license and price jobs. Get those right and the stack is ordinary: senior debt, the seller's participation and investor equity for the gap. Miss one and the backlog leaves at close.
Why a contractor is a different purchase
Most small businesses are bought on last year's cash flow. A contractor is bought on jobs that are half finished, priced by someone who may not stay, and backed by a surety that never agreed to back you. So the surety becomes a second underwriter, next to the bank. Bring it in early.
Cody Sechelski spent more than a decade in Texas construction and trades before he bought companies, and he worked with Raises.com® on the capital structure of his first acquisition. It was a family-run HVAC business. That is a specialty trade, so nothing below about bonding comes from his file.
1. The surety: bonding follows the owner
A surety writes the bid, performance and payment bonds a contractor needs for public work and many private jobs. The Miller Act requires performance and payment bonds on federal construction contracts above its threshold, and states have their own versions, often called Little Miller Acts. A bond is credit. If the contractor fails, the surety pays to finish the job and then collects from whoever signed the indemnity agreement.
That is the part a buyer misses. The bonding program rests on the surety's view of the current owners and their signatures on the indemnity agreement. When you buy the company, the surety underwrites you from the start, with your personal financial statement and a new indemnity agreement signed by you and often your spouse.
Sureties call their test the three Cs: character, capacity and capital. Capital is read from the balance sheet. The surety counts working capital and tangible net worth, leaving out goodwill, so the debt and goodwill you book at close can shrink the bonding the company needs. Show the surety your post-close balance sheet before you sign the purchase agreement.
Then settle who stands behind the jobs already bonded. In a stock purchase the seller signed the indemnity on those bonds and will want a release, while the surety wants your signature before it lets the seller go. Write that handoff into the purchase agreement. List it job by job.
2. Work in progress: the schedule a lender reads
A contractor books revenue as each job moves toward completion, so the work in progress schedule is where the earnings actually sit. It lists every open job with the contract price, costs to date, estimated cost to finish and percent complete. Two lines come out of it. Overbillings are billings ahead of the work, and underbillings are work done and not yet billed.
A lender reads overbillings as a debt, because the cash has already come in while the labor and materials are still owed. Treat it the same way in your working capital target. A seller who sweeps that cash at close leaves you finishing jobs that were already paid for.
Underbillings draw the opposite suspicion. A large, growing balance can mean a job ran over cost and nobody has billed the change order yet. Ask for the closed-job report for the last two years, with the margin each job was bid at and the margin it finished at. That gap is called fade. A company whose jobs fade every year has an estimating problem, and the earnings you are paying for are smaller than the statements say.
3. Retainage: earned, billed and not collected
Project owners hold back part of every progress payment until a job is closed out. General contractors do the same to their subcontractors. That holdback is retainage, and it sits on the balance sheet twice: as a receivable the company is owed and as a payable it owes its subs.
Age it. Retainage on a job finished a year ago usually means an open punch list, a dispute or an owner who will not pay. Asset-based lenders often leave it out of the borrowing base. Some also exclude receivables on bonded jobs, because the surety can claim those contract funds to finish the work. Size the line on what the lender will count.
4. The license and the estimator: the key-man test
Many states license a contractor through a named individual. In California that person is the qualifier, a responsible managing officer or employee, and if the seller holds the role and leaves, the license can be suspended until a replacement qualifies. Settle the qualifier before closing. You qualify, you hire one, or the seller stays on under a written agreement.
The estimator is the other key person. A contractor's margin is set on the day a bid goes out, and in a family-run company the person pricing those bids is often the owner. Find out who priced the last ten jobs. Then find out whether that person is staying.
Cody's test for the deals that close includes a business that survives the key-man test, next to clean financials that agree with each other. A contractor whose license and bids both live with the seller fails it. Fix that in the purchase agreement, with a transition period and named successors.
5. The stack: senior debt, the seller, then investors
The senior layer is an SBA 7(a) loan up to its $5M cap, or a bank term loan sized on cash flow. Excavators, loaders and trucks can carry their own equipment loan on appraised value. Every layer of debt shows up in the ratios the surety reads, which is why the stack and the bonding program are planned together.
The seller's participation is the cheapest answer to the key-man problem. A seller note or rolled equity keeps the seller invested through the transition, when the open jobs and the license are most exposed. Cody's deal used an equity-light structure with seller participation, and the capital came from a tournament across multiple capital firms. The final lender quoted three weeks and took two.
Investor equity fills what is left, through an SPV raised under Rule 506(b) or Rule 506(c) of Regulation D. File Form D within 15 days of the first sale. The PPM's risk section names the bonding program, fade and the key people in plain words.
Ade worked with Raises.com® and went from no funded deals to two closed acquisitions, with a thesis built on defensible industries and capital preservation. A contractor with repeat clients and a long bonded record fits that thesis. One that wins on the lowest bid every time does not.
What the surety and the lender will ask for
- WIP schedules for the last two year-ends and the latest quarter
- The closed-job report, with bid and final margin by job
- CPA-reviewed or audited statements and the tax returns
- Retainage receivable and payable, aged by job
- The bonding history: program limits, open bonds and any claims
- The license, who qualifies it, and the estimator's agreement
- The equipment list with serial numbers and liens
- Your personal financial statement and the draft purchase agreement
If the WIP schedule and the financial statements do not tie, stop there.
Bonded project contractor vs service trades company
| Bonded project contractor | Service trades company | |
|---|---|---|
| How revenue is earned | Contracts billed by progress on each job | Service calls and maintenance agreements |
| What the balance sheet holds | Work in progress, overbillings, underbillings, retainage | Receivables and parts inventory |
| Who underwrites you besides the lender | The surety, before it writes another bond | A surety only if the company bids bonded work |
| Key people | The license qualifier and the estimator | The license holder, the dispatcher and the senior technicians |
Frequently asked questions
Does a contractor's bonding transfer when you buy the company?
Not on its own. The surety underwrites the new owner, asks for a new indemnity agreement and resets the limits from the post-close balance sheet.
Can I use an SBA loan to buy a construction company?
Yes, up to the $5M SBA 7(a) cap, when the company meets the SBA size standard for its NAICS code. For construction that standard is set by average annual receipts.
Who signs the surety's indemnity agreement?
The surety decides, and it usually asks for the owners and their spouses. It reaches personal assets, so read it with your own counsel first.
What happens to jobs in progress at closing?
In a stock purchase they stay with the company. In an asset purchase each contract may need the project owner's consent to assign, so read the assignment clause in every one.
Raises.com® builds the structure behind the purchase of a business or a building: the PPM, the subscription and operating agreements, the CFA financial proformas and the data room. That keeps the raise legally and financially sound. See how acquisition capital gets structured at https://raises.com/buy-a-business, or book a strategy call at https://raises.com/call.
General information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.