Whether you think getting bonded is a piece of cake or you are rather unfamiliar with surety bonds, there are potential traps along the way of obtaining your dealership’s bond. Why fall in, when you can simply learn to avoid them?
Many dealerships struggle with obtaining a surety bond, simply because they don’t get the facts straight before they apply for one. First of all, don’t forget the bond’s purpose. It is usually required by the state, county or city in which you operate and it is a prerequisite for getting registered or licensed as a dealership. It’s there to guarantee to your customers and to the state that you will follow the rules regulating your business. That’s why you should treat it as a form of credit given to your company. In a way, it acts as proof of your credibility and reliability as a business.
Now that you understand why you need a bond in the first place, let’s delve into the potential pitfalls into which auto dealers can fall in the process of obtaining their surety bonds.
#1 Check the bonding amount requirement
As the auto dealer bond is usually required by the authority that will provide you with your dealership’s registration or license, the bonding amounts vary greatly between states, counties and cities.
Moreover, as there are various types of licenses that you can get, the bonding amounts are different for different licenses as well. For example, if you want to get licensed as a wholesale dealer, it is very likely that you will need a different bonding amount than if you want to become a used car dealer.
Thus, whenever you are preparing your licensing application forms and documents, be sure to carefully note the correct bonding amount that is required of you. In this way, you will avoid paying more for a surety bond or having an invalid bond. And one more note – you might think I’m joking, but such small details really can slow down and impede your licensing process as a dealer. Make sure to get the right surety bond forms required for your license and to have them filled out by the surety.
#2 Double check your surety’s credentials
It’s important to know you can count on your surety. If your bond is backed by a top surety company, you can rest assured that if there is ever a claim against your bond, everything will proceed according to the standard procedure and you won’t be burdened with extra costs. There are ways in which sureties prove their capability to underwrite bonds and cover claims.
How can you check that? First of all, there are surety companies and surety agencies. The former are the ones that actually underwrite bonds, while the agencies maintain relationships with different surety companies and match the client to the best underwriter. Thus, you should check what companies your agency is working with.
Surety companies need to be licensed in your state and should be A-rated and T-listed. A-rated means that they have a good A.M. Best Company listing score. Ratings range from A++ to F (liquidation) and S (suspended). T-listed, on the other hand, means that the bonding company is allowed to write bonds for federal or other projects. Thus, it is included in the Department of Treasury’s Listing of Approved Sureties.
#3 Know when your bond expires
Once you’ve got your dealership set up, it’s important to keep track of the periods in which you have to renew your license, which also apply to your surety bond. Often, dealer licenses are valid for one or two years, and usually it’s the same case for dealer bonds.
Renewing your surety bond in time is crucial for the continuation of your dealership’s license. Even if you fulfill all other requirements for the license renewal, if you don’t have a valid dealer bond, you won’t be issued the renewal. You can avoid wasting time when you can be doing business by obtaining your bonding in advance. This will also save you money, because if your license gets discontinued, you might have to undergo a more complicated renewal process or you might have to pay higher fees.
Avoiding surety bond mistakes is important for every auto dealer. With a little extra attention, you can skip unpleasant licensing and bonding situations, as well as potential problems with bond claims. If you have any questions, don’t hesitate to email me for clarifications.