What is a Texas Auto Dealer Bond?
Establishing an auto dealership in Texas comes with many responsibilities, not the least of which is obtaining a Texas auto dealer bond. As part of the licensing process, having a Texas auto dealer bond is required to protect customers who engage with your dealership. When illegal or fraudulent business practices take place, a claim can be made against your Texas auto dealer bond to cover financial losses the customer experienced.
Like other surety bonds, a Texas auto dealer bond is a contract between three parties. The obligee is the licensing authority that requires the bond. For auto dealers in the state, the obligee is the Texas Department of Transportation. The dealership that needs to obtain the bond is the principal, and the surety is the company providing the bond.
What Does a Texas Auto Dealer Bond Cost?
The Texas Department of Transportation requires auto dealers operating either new or used dealerships in the state to have a bond of at least $25,000 in place. However, you are not required to pay for the entire bond amount out of pocket. Instead, you pay a percentage of the Texas auto dealer bond, based on several factors.
The surety company providing your Texas auto dealer bond takes a close look at your personal credit score as well as your business financials. Because a surety bond is a form of credit extended to your dealership to cover claims, having strong credit is helpful in getting a low-cost bond. For most auto dealers, the percentage of the bond amount paid ranges from 1 to 10%. Auto dealers with poor credit are charged a higher percentage rate than auto dealers who have good credit.
How Do You Get a Texas Auto Dealer Bond?
You can start the process of getting your Texas auto dealer bond easily. You simply need to submit a brief online quote request and provide basic information on your dealership.