Evaluating the financial stability of a contractor can mean the difference between a contractor that is there when you need them and one that has vanished because the money dried up. There are four key reas that consumers can use to evaluate the stability and trustworthiness of a contractor -- and they're all easily discoverable.
Why It’s Important: Many contractors work right out of their wallets, dipping into private cash reserves to purchase materials and pay labor. Make sure that any contractor you're planning on hiring has is large enough to accomodate all normal business functions. Cash flow is important in this business and many smaller contractors have to get creative to keep money flowing in the right direction.
Bank Letters & Supplier Letters
Why It’s Important: A signed document from the contractor’s bank will show you the financial stability as well as the bank’s evaluation of credit worthiness and character. Insist on seeing this letter so you know that you’re dealing with a company that is stable and financially sound. A supplier letter is easy for your contractor to obtain—if yours says they are difficult to obtain, that could be a red flag that something is amiss.
What To Look For: Insurance Certificate
Why It’s Important: You need to know if your contractor carries general liability insurance for both commercial and residential projects. A sizable contractor will carry no less than $500,000, with an average around $1,000,000 of coverage. If your contractor’s insurance policy can’t cover potential damages, the contractor would be personally liable and financially responsible for any incidentals. Over half of contractors are not financially stable and don’t carry proper insurance coverage to protect the consumer against losses and damage.
Certifications, Licenses and Permits
Why It’s Important: Make sure the contractor has the required licenses and permits, and has been operating under the same name for a minimum of 5 years. Unscrupulous and fly-by-night contractors open and close their doors multiple times to avoid past customer complaints, often moving between counties and municipalities to exploit loopholes in the code.