What is an Auto Dealer Bond?
Auto dealer bonds (also known as car dealer bonds) are legally binding contracts that protect your customers. Should you not follow the regulations in place, your clients can make claims against your bond which you're responsible to pay. For example, if you sell a vehicle with invalid tags, a claim can be made.
How Much Does an Auto Dealer Bond Cost?
Auto dealer bond costs are a percentage of the bond amount required of you, which is based on your personal credit, the bond amount and your state.
Getting a Dealer Bond with Bad Credit
It's possible to get a new and used car dealer surety bond with bad credit, but not all bond agencies will be able to approve you. Why? Because your personal credit is the main item that is considered when you apply for your bond; it's used to get an idea of your likelihood of triggering bond claims and your ability to pay them.
Things like unpaid collections or tax liens on your credit report are a negative reflection of how you handle your finances, and since you are responsible to pay bond claims, can result in getting declined for a bond. Unfortunately, even if you get approved for a bond with credit issues, your costs will likely be higher. Use our free estimate tool to find out what your bond will cost with credit issues.
What Does an Auto Dealer Bond Cover?
Your surety bond protects your clients, not you. If you commit fraud or break any other rules while selling vehicles, your clients can file claims on your bond. However, your DMV dealer bond benefits you as well.
How? The easiest way to grasp how your bond benefits you is by understanding what surety bonds are and how surety bond alternatives affect your dealership.
Types of Auto Dealer Bonds
There are a few different types of auto dealer bonds that can be required depending on which state you'd like to conduct business in, and they type of vehicles you want to sell. Some of the most common types include:
- New auto dealer bond
- Used auto dealer bond
- Mobile home dealer bond
Our company handles all auto dealer bond types, and you can get a free online quote today.
How to Get an Auto Dealer Bond: Step-By-Step Guide
#1: Determine Your Requirements
Most states require auto dealer bonds to operate a dealership, but not all. If you're just beginning your research, select your state from the map below to determine your requirements.
Select Your State
to Find a Surety Bond
- Select your state
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- Washington D.C.
- West Virginia
If you need help with getting your license, we created a free e-book guide that will walk you through every step to get your auto dealer license. You can also check out our online auto dealer license guide.
#2: Get Approved for Your Motor Vehicle Dealer Bond
Once you know which bond you need for your dealership, your next step is to apply online for your bond.
#3: Sign and Submit Your DMV Bond to the State
Once you have your auto dealer bond in your hands you will need to:
- Sign your bond
- Make a copy for your records
- Send the signed bond to the state (along with any other important paperwork provided by the state or bond agency)
The state should contact you after they receive your bond and ship your license to you; this process can take roughly one to three weeks depending on your state.
Dealer License Bond Claims Can Put You 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 car dealership 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 agents won't take the time to explain how claims can put you at risk and how to avoid them; if this happens when working with a bond agency it should be a big red flag to reconsider doing business with them.
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What You Need Besides a Car Dealer Surety Bond
There are several things that you'll want to have covered to ensure your dealership is a success. Although not required like an auto dealer bond, these tactics will give your business the best chance at succeeding and growing.
Incorporate Your Dealership
While incorporating your dealership might not seem necessary, doing so can offer several benefits that you might not be considering:
Your personal assets will be protected. This means if you have outstanding business debts, your personal assets like your vehicles or home can't be taken as payment.
Incorporation instantly adds credibility to your dealership. Having "LLC" or "Inc." at the tail end of your company name can attract new customers and partners, and suggests that your company is a stable one that means business.
Once you incorporate in most states, other businesses within your state cannot file your exact dealership name. This benefits your brand, as your company can not be confused with another with the same name.
There are also tax benefits, as incorporation allows you to write off expenses such as health insurance and life insurance premiums.
You will also have an easier time getting loans if needed, as banks often prefer lending to incorporated businesses. This is vital for small businesses that often do not have the start-up cash available.
Get Insurance, Protect Your Business
There are different types of insurance which have their own benefits. Property and casualty auto dealership insurance can cover things like bodily injury and property damage. Whether you are a large new vehicle dealer, or a smaller used vehicle dealer, these types of insurance coverage offer protection that could benefit both:
- Physical damage: protects your vehicle inventory in lots and vehicles used for test driving.
- False pretense: protects you from your customers. For example, if a customer takes a test drive vehicle without a sales person's permission and steals or abandons the vehicle, you'll be covered.
- Title E&O: protects you from customers who are unhappy with the purchase of their vehicle, repairs, or other services that you provide.
If you have a larger dealership, you may also be interested in:
- Garage liability: protects your customers vehicles that are repaired or maintained in your garage.
- Workers compensation: protects your employees if they are injured on the job and reimburses them for the injuries or lost time at work.
- Excess liability: protection in excess of any garage liability, workers compensation, or other coverage.
Remember, you'll want to contact a P&C insurance agency that specializes in dealership insurance for more information and to get your coverage in place. You can also get fidelity bonds, which can protect you or your customers:
- A business service fidelity bond will protect your customers from dishonest acts by your employees like theft.
- An employee dishonesty fidelity bond can protect you from your own employee's dishonest acts such as theft, embezzlement and forgery.
Sharpen Your Skills with Sales Courses
Once you have your dealership incorporated and insurance in place, taking sales courses can take your profits to the next level. Online courses are available to boost your profit, sales confidence, sale consistency and show you how to get new customers in the door and keep them loyal customers.
Save Money on Auto Dealers Bond Claims
Your bond agency should be your first line of defense against bond claims. Avoiding claims is as easy as operating your business professionally and ethically when selling vehicles, while following the rules of your bond. While this might seem like common sense to you, some auto dealers are tempted to mislead their customers to earn extra profit, such as knowingly selling products that lack in quality to save on expenses.
If you mislead your customers even in the smallest way, it can come to back to harm your dealership in the form of bond claims. Remember, you are responsible to pay for any motor vehicle dealer surety bond claims that you cause. Find out how we can save you money on bond claims if they arise. If you need help understanding exactly what your bond guarantees you will and will not do, please contact a bond professional.