ralitsaimageDo you know what a surety bond is? Despite their wide use, surety bonds remain a mystery for many dealers.

Whether you are already licensed and running your auto dealership, or you are looking ahead to start one, you have probably heard of surety bonds. Getting bonded is an indispensable step in the process of obtaining a license as an auto dealer.

If you don’t want to be caught by surprise the next time you meet this term, read on for the three facts about surety bonds that you simply need to know. They will give you a clear understanding of what a surety bond is, why you need it and how to get it.

What is a surety bond?

Let’s start with the basics.

Fact 1: It is not insurance, since a bond is not meant to protect your dealership. It is protection for your clients.

The bond acts as a safety net against fraudulent acts of auto dealers. It guarantees that the bonded business will follow the rules of the state in which it is operating.

A surety bond is an obligation from a principal (i.e. an auto dealership) who promises to pay the obligee(i.e. the state agency requiring the bond) in case they do not abide by the relevant state legislation. The surety bond provider issues the bond after assessing the principal. In case there is a claim against the principal, the surety bond company will initially pay the due amount. Still, it will have to be reimbursed in full by the principal.

Now that you know the basics, let’s keep going…

Why does your dealership need a surety bond?

The reason why you need a surety bond to open an auto dealership and to keep renewing your license is simple.

Fact 2: A surety bond is required by the state in which you operate as a prerequisite for obtaining a car dealership license. It is a safety net for the state and the public.

This requirement is the usual practice, thus it is not the whimsical idea of a particular state, even if it seems like it. Motor vehicle dealers are asked to get a license surety bond to guarantee that they will abide by the rules of the Department of Motor Vehicles in their respective state.

But remember that the clients aren’t the only ones who get something out of the bond – the requirement is beneficial for your business, as well. As the surety bond is a form of credit given to your business, it actually signifies you are trusted to get the job done.

Depending on the state requirements and your field of operation, you might need to get a surety bond for different kinds of licenses. These include retail dealer bond, wholesale dealer bond and used auto dealer bond.

When you’ve figured out which bond you need to get, it’s time to ask…

How to get bonded?

This one you certainly won’t get from Wikipedia.

Fact 3: Getting bonded is a straightforward process. You just need to check your credit score and apply with a surety bond agency.

In many cases, you can apply for a surety bond online. Often you can get a price estimate in advance. The price is a percentage of the bond amount, which can be influenced by your credit score and general risk assessment. Generally, the bond costs vary depending on the bond size, the applicant’s situation, the state and the surety bond agency.


We hope this information has cleared the air and given you the confidence to talk about bonds with anyone, anytime. Refer back to this article the next time you have to renew your license or open a new dealership. No more embarrassing bonding questions!


Digital Dealer