Performance bond called on a contract
Performance bond calls are high-stakes and time-sensitive. The bank or surety that issued the bond has paid the client and will now pursue you for the bond value, typically with a 30 to 90 day window before formal recovery begins. Mainstream and specialist working-capital lenders engage if the underlying business is sound and the dispute is isolated. The first 30 days matter more than the next 6 months.
The 3 parallel workstreams
- Commercial. Open a settlement conversation with the client. Most bond calls are leverage moves around a wider commercial dispute (defect remediation, late-completion damages, final account). A negotiated settlement is usually cleaner than letting the surety pay and pursue separately.
- Surety / legal. Engage the bank or surety inside their pursuit window. They will accept a structured repayment if the company is otherwise solvent; they prefer that to litigation. Get legal advice on the underlying contract dispute before signing any acknowledgment.
- Funding. Apply to specialist working-capital or bridging lenders in parallel with the commercial conversation. Funding is not the answer on its own, but it buys time for the commercial settlement.
Lender appetite by bond size
- Under £100k. Unsecured working-capital routes engage (iwoca, specialist short-term). Bridging unnecessary.
- £100k to £500k. Bridging lenders against property or other security; specialist asset finance against equipment cover. Sometimes specialist invoice finance against other projects.
- £500k+. Bridging or structured finance, almost always against property security. Specialist construction lenders if context is right. Speak to a corporate finance adviser; this is not a comparison-site routing.
FAQs
What is a performance bond and when does it get called?
A performance bond is a guarantee issued by a bank or specialist surety to a project client, guaranteeing the contractor will complete the contract per terms. Typically 5 to 10% of contract value. It is called by the client when they argue the contractor has materially breached the contract: missed completion deadlines, defective work, abandoning site, or insolvency events. Once called, the bank or surety pays the client and then pursues the contractor for the bond value.
Can I borrow to repay the bank or surety after a bond is called?
Yes but the lender pool is specific. Mainstream working-capital lenders will engage if the underlying business is otherwise sound and the bond call relates to a single dispute rather than a systemic delivery failure. Specialist construction and contracting lenders are more comfortable with the context. Bridging lenders can fund 6 to 18 month exits if the underlying receivables (retention release, final account settlement) will close out the position.
Will a bond call show on my credit file?
The bank or surety claim itself does not show on the public credit file. But if you do not repay the surety inside their pursuit window (typically 30 to 90 days), they will issue a statutory demand, then a CCJ, then potentially a winding-up petition. Once that chain starts, the credit file and lender appetite tighten sharply. Act inside the 30-day window.
What documentation will lenders ask for?
The bond call letter or notice from the surety, the underlying contract and any amendments, your version of the dispute (what was breached and why), the project commercial position (work in progress, costs to complete, retention held, final account valuation), and the standard lender pack (bank statements, management accounts, director information for personal guarantee).
How does this interact with my main contractor or main client relationship?
Critically. A bond call almost always damages the contractual relationship. If the project is mid-flight and you need the client to keep paying valuations, parallel commercial conversation matters as much as the funding conversation. A negotiated settlement of the bond call with the client (rather than the surety paying out and pursuing you separately) is usually the cleaner outcome.
Can I use invoice finance on the same project?
Not directly on the bonded element, no. Invoice finance lenders exclude work that is subject to live dispute, set-off, or bond call. But you can run invoice finance on other live projects to release working capital while you settle this one. Our sister site MarketInvoice covers invoice finance specifically.
Is this only a construction sector issue?
No. Performance bonds are common in construction (JCT, NEC contracts) but also exist in manufacturing supply contracts, government contracts, large fit-out projects, and certain professional services (architects, engineers on RIBA Stage 4+ work). The routing is similar across sectors; the lender pool that engages depends on the contract type and sector.
To get matched to specialist working-capital or bridging lenders: eligibility checker. Limited companies, LLPs and partnerships of 4+ only.