Loss-Making Company Questions
Frequently Asked Questions
Expand a question for guidance on trading losses and surety underwriting.
Can a loss-making company obtain a surety bond?
Potentially. A trading loss can make underwriting more difficult, but the surety will normally consider the reason for the loss, current trading, liquidity, balance-sheet strength and the contract being supported.
Does one year of losses automatically mean a bond will be declined?
No universal rule applies. A one-off loss may be viewed differently from continuing deterioration over several periods.
Why do sureties care about profitability?
Profitability can affect cash generation, reserves and the ability to absorb unexpected project or trading losses.
Can current management accounts help after a historic loss?
Yes. They can be particularly useful where filed accounts no longer reflect the current position and the company has returned to profit or improved materially.
Is a loss-making company the same as a company with negative net assets?
No. A trading loss relates to performance over a period, while net assets describe the balance-sheet position at a particular date. A company can have one without the other.
Can a one-off exceptional cost be taken into account?
Potentially. The underwriter may consider whether the loss arose from a genuinely non-recurring item and what normal underlying trading looks like.
What if the loss came from one bad contract?
The surety may want to understand the cause, whether the project has completed, the financial impact and what controls have changed to reduce the risk of recurrence.
Can rapid growth cause a company to make a temporary loss?
Yes. Investment in people, systems, premises and working capital can temporarily affect profitability, although the surety will still want evidence that the growth is sustainable.
Can a company with strong cash still be acceptable if it made a loss?
Potentially. Liquidity is an important factor, but the surety will normally consider it alongside profitability, net assets, workload and future trading prospects.
Will a loss automatically mean a personal guarantee is required?
No. Some markets may request additional support where appropriate, but a personal guarantee is not an automatic consequence of a trading loss.
Will a loss automatically mean cash collateral is required?
No. Collateral may be requested in some circumstances, but it is not a universal requirement simply because the company has reported a loss.
Can parent-company support help a loss-making applicant?
Potentially. The strength of the wider group can sometimes form part of the underwriting and security structure.
Can another surety consider the case after one market declines?
Potentially. Different markets can have different appetites, although the reason for the loss and the original decline should still be addressed.
Does the size of the loss matter?
It can, but the amount is normally considered in context with the size of the business, available capital, liquidity and the reason for the loss.
Does the size of the bond matter if the company is loss-making?
Yes, it can. Larger bonds create greater potential exposure and may therefore lead to closer consideration of financial strength and available support.
Can a company that has returned to profit still face underwriting questions?
Yes. The surety may want to understand how long the improvement has continued, whether it appears sustainable and how much of the historic loss remains reflected in the balance sheet.
Should the reason for the loss be explained in the surety application?
Yes. A clear explanation supported by recent financial information can help the underwriter understand whether the loss represents an ongoing concern or a historic issue.