The Merchants Difference: Consistency, Quality, and Common Sense

By Kirk Rathjen
Sr. Vice President, Contract Underwriting – East Division

krathjen@merchantsbonding.com

The foundation of Merchants Bonding Company’s success lies in our philosophy of building strong, long-term relationships with both our agency partners and contractors.   As part of this approach, Merchants remains committed to disciplined, high-quality underwriting, avoiding the temptation to lower standards for short-term gains.

Over the past 4–5 years, we’ve all witnessed how shifting economic conditions have significantly impacted the construction industry. New challenges emerging in today’s economy will likely impact the success of contractors and the performance of the surety industry as a whole. 

It is our consistent underwriting discipline and our unique philosophy that define the “Merchants Difference.”

Flexibility
Many of our competitors format their underwriting to rigid credit models – where decisions are heavily dictated by standard ratio analysis. Merchants has intentionally chosen a different path.  We have remained consistent with our founding principles by maintaining a flexible approach that considers each account on its own merits. This personalized underwriting philosophy sets us apart by allowing us to deliver tailored solutions that meet the unique needs of our clients. 

Profitability
Profitability is one of the most important underwriting criteria when evaluating an account. While profitable accounts are typically the most desirable to sureties, a lack of profitability does not automatically disqualify an account from being bonded. Some surety companies may choose to discontinue their relationship with an account after consecutive years of losses. However, Merchants does not make such decisions based solely on profitability.

Even if an account has experienced losses over multiple years, we are still willing to consider supporting it. In these cases, we require a clear understanding of the reasons behind the losses and the strategies in place to return the account to profitability.

Net Worth vs. Working Capital
While many surety markets concentrate on working capital (W/C) in their credit evaluations, Merchants takes a distinct approach by placing primary emphasis on net worth. This can make us a valuable partner for accounts with limited working capital but strong overall financial backing.

Where others might demand refinancing of current liabilities or capital injections to boost W/C, Merchants typically does not. Instead, we focus on the broader financial picture by supporting accounts that demonstrate strong net worth, clean payment history, and solid banking relationships to assist with cash flow support.

Our flexible underwriting approach can open doors for well-capitalized firms that may be overlooked elsewhere.

Pooling of Equity
Merchants’ underwriting philosophy is also unique in our willingness to consider both business and personal equity when establishing surety limits. By incorporating personal equity into our evaluation, we’re often able to support accounts with limited business equity or other underwriting challenges. This approach frequently allows us to write accounts “as is,” while other markets might require a personal capital infusion to meet traditional underwriting standards. The personal assets most attractive to Merchants include liquid assets—such as cash and marketable securities—as well as unencumbered real estate. When personal equity is considered, asset verification may be required.

Financial Statement Quality
Many of our competitors require a Certified Public Accountant (CPA)-prepared financial statement before issuing a bond. Merchants, however, takes a more flexible approach. While a CPA-prepared statement may be necessary in certain cases, it is not always a requirement with us.

We assess each account individually by taking into account its specific circumstances. We have consistently shown a willingness to support clients even in the absence of CPA financial statements, provided the underlying facts justify it.

Common traits accounts typically possess when considering a flexible approach on the CPA requirement include limited bond needs in both size and frequency, verified key business and/or personal assets, and clean business and personal credit reports, with favorable supporting references.

Driven by our common sense approach to underwriting, these principles position us as a preferred surety partner, ready to support our clients through both current and future opportunities.