BMC-84 or BMC-85: What’s Right for You?
You have two options to get your license: obtaining a freight broker bond (BMC-84) or a trust fund (BMC-85). They both offer advantages and disadvantages depending on you and your brokerage. Read our detailed article to determine whether you should get a BMC-84 or BMC-85.
Why Do You Need a Freight Broker Surety Bond?
You need a bond for your freight brokerage to protect shippers and motor carriers. If you don’t follow FMCSA rules, claims can be filed against your bond which you’re responsible to pay. For example, if you don’t pay motor carriers in a timely manner, a claim can be made.Learn more about how surety bonds work and how not having a full understanding can put your brokerage at risk. Formerly known as an ICC bond, the freight broker bond is still sometimes referred to as a transportation broker bond or property broker bond.
If you need help with starting your brokerage, we recommend that you download our free e-book which details everything you need to know for how to become a freight broker. If you're unsure whether you should start freight brokering in the first place, read our article to find out the five reasons you should consider starting a freight brokerage.
We also manage a freight broker LinkedIn group where you can interact and learn from other professionals in the industry.
What Does a BMC-84 Bond Cost?
Costs are a percentage of the full bond amount, which is based mostly on your personal credit. You can use our bond premium calculator tool to get a quick estimate on your bond, or you can apply online to get a firm quote.
Freight Broker Bonds Process
If you’re starting a new freight brokerage, you'll need to register with the FMCSA in order to obtain your freight broker authority (you'll also want to ensure that you have a business plan in place). Once registered, you’ll need to get a freight broker bond from a bond company and ensure your bond gets filed with the FMCSA (as mentioned above, this was previously referred to as an ICC surety bond). Read our complete guide to getting your freight broker license. If you're new to freight brokering, take a look at our top freight broker training schools and find out how to market your brokerage effectively.
Bond Claims Can Put Your Brokerage at Risk
You’re responsible to pay bond claims in full which can be as large as the full bond amount (including legal costs). The indemnity agreement you must sign to get your transportation broker surety bond is a legal contract that pledges your corporate and personal assets in the event of bond claims. Watch our video for an easy to understand explanation of how bond claims work. Unfortunately, most bond agencies won’t take the time to explain how bond claims can put you at risk and how to avoid them; if this happens when working with a bond agent it should be a big red flag to reconsider doing business with them.
Save Money on Bond Claims
Your bond agency should be your first line of defense against bond claims. In order to avoid claims, simply follow FMCSA regulations and make sure to pay motor carriers when necessary. Remember, you are responsible to pay for any bond claims that you cause. There is a large number of false claims in the freight broker industry; learn how we can save you money on claims if they occur. If you need help understanding exactly what your bond guarantees you will and will not do, please contact a bond professional.
Freight Broker Insurance Requirements
Public Liability Insurance
Besides the surety bond for freight brokers, motor carriers are required to get public liability insurance to insure against bodily injury, property and environmental damage.
Brokers and carriers will also need to file the BOC-3 form with the FMCSA. This form is required to designate process agents and is required to operate your brokerage legally.
If you'd like to avoid the extra paperwork, our company can handle your BOC-3 filing for you.
Unified Carrier Registration
You will also need to obtain your Unified Carrier Registration (UCR). For freight brokers, it’s relatively simple and inexpensive at only $76. If you’re also a motor carrier, then your registration cost will vary depending on the size of your fleet. In either case you’ll need to re-register and pay the fee annually. The UCR system registers and collects fees from the operators of vehicles engaged in interstate travel. Registering through this system can be done online at the UCR application website.
What Freight Broker Bond Amount Do You Need?
As of October 1st, 2013, freight brokers and forwarders are now required to get a $75,000 freight broker bond to get their authority. However, highly qualified freight brokers can also get an optional $25,000 in bond coverage to provide extra protection for their shippers and motor carriers. Learn more about how you can stand out from the freight broker crowd.
Don’t Be Fooled By Underfunded Freight Broker Trusts
As mentioned above, you can either get a freight broker bond or a trust fund to obtain a license for your brokerage. However, it’s crucial that you understand not all trust funds being offered meet the FMCSA standards, and have led to hundreds of freight brokers losing thousands of dollars.
If your trust is not properly funded, you may not find out until it is too late. The FMCSA has shut down BMC-85 trustees in the past for only partially funding trusts, resulting in Federal indictments and leaving freight brokers scrambling to pay for a new bond or trust to remain in compliance. If you choose to go with the trust fund option, you should verify that you’re BMC-85 trust fund is acceptable.
How to Verify Your BMC-85 Trust
If you're buying a trust, you need to make sure that you are getting what you're paying for. The FMCSA declared that the group trust funds are not an acceptable option. Therefore, if you are purchasing a BMC-85 trust fund and not providing $75,000 in cash collateral, you must provide an Irrevocable Letter of Credit (ILOC) to the trustee, or they must post the ILOC on your behalf.
Obtain a copy of the ILOC (see: example ILOC)
Check the ILOC to ensure it specifically lists your company
Contact the bank backing the ILOC to confirm it is legitimate
Contact the state in which the bank is licensed to confirm its status
If the trustee refuses to provide you a copy of the ILOC, it should be a huge warning flag that you are not getting what you are paying for and the trustee may be at risk of getting shut down. You don't have to verify that a surety bond is properly funded, as it is already done for you by the Department of Insurance and third parties like A.M. Best. Bonding companies are given both a financial size category and financial stability grade by the rating agency. These ratings are used by the government to verify everything is in place for you.
What Makes a Good Freight Broker Bond Company?
There are many companies that provide freight broker bonds, but not all are created equal. Find out what makes a good freight broker bond provider so you can save hundreds and avoid paying false bond claims.
Your Bond is Worthless Without Strong Financial Backing
When you get a surety bond, a surety company is providing you a form of credit by guaranteeing that any potential claims caused by your freight brokerage will be paid. If you do cause bond claims, the surety will step in to pay them. However, you'll ultimately be responsible to pay the surety back. With a freight broker bond, the surety company is guaranteeing your performance by backing you financially.
If the surety company who writes your bond is financially weak, this is a red flag that they may not have the cash to pay claims on their customers' bonds. The FMCSA will reject your bond, forcing you to buy another, and you will likely receive no refund for your rejected bond. Don't run the risk of purchasing a worthless bond. Our agency's freight broker bonds are backed by one of the strongest (A+ rated by A.M. Best) and largest surety companies in the nation.
Dedicated Team to Help You Fight False Claims
The freight broker industry is filled with bond claims, and many of them are false. The high amount of false bond claims are due to delayed payment to shippers and motor carriers who believe they are getting ripped off, while in reality the payment is often just delayed. If you don't have support to refute false claims, money will be coming out of your pocket to pay them. Our agency has a team of claim specialists that will help you dispute and provide proof for bogus claims so you can avoid spending hundreds of your hard earned money needlessly.