By Vic Lance, Founder and President, Lance Surety Bond Associates, Inc
If you’re already licensed as an auto dealer, then you likely have gone through the surety bonding process before. Most states require dealers who sell more than the threshold number of vehicles during a year to get licensed, and securing a surety bond is a requirement for obtaining a dealer’s license in nearly every state. However, surety bonds for auto dealers typically expire each year. To maintain your license, you must also keep a bond in place. Here’s some information about how to renew your auto dealer bond and what to expect if your bond has been canceled or revoked.
Why You Must Renew Your Bond on Time
Most states require dealers to secure an auto dealer license before they can legally operate their businesses. States that require dealer licenses also require auto dealers to secure auto dealer bonds as a condition of licensing approval. However, once you purchase an auto dealer bond, it will not last forever. Instead, dealer bonds normally expire each year. This means that just like the fact that you must renew your dealer’s license each year, you must also either renew your existing surety bond or purchase a new one. Surety companies are generally required to report to the state whenever a bond has expired or has been canceled, so forgetting to renew your bond could cause problems with your auto dealer license and force you to suspend your business while you work to secure a new bond.
What Happens If Your Bond Is Canceled or Revoked?
If your surety company cancels your bond, it will notify the state. Since getting and maintaining a surety bond is a condition of your auto dealer license, a bond cancelation can also result in a suspension of your license. You need to conduct your business in such a way that you will be able to keep a good relationship with your surety company and avoid claims against your bond. If a valid claim is filed, make sure to promptly pay it.
If your bond is canceled, it will be much more difficult for you to get a new bond. You will have to go through the same application process as you did when you got your original bond. The surety company will review your credit, your business finances, your personal finances, and your reputation to decide whether to approve you for a bond. If your bond was canceled because of a history of claims and unethical business practices, your application for a new bond might be denied. If a surety company does agree to issue a bond to you, you can expect to pay a high bond premium up front of up to 10% or more to secure it.
Process of Renewing a Surety Bond
To renew your auto dealer bond, follow the steps below.
1. Pay Attention to the Renewal Deadline
Auto dealer bonds generally expire each year. In some states, bonds expire on Dec. 31. In others, the annual expiration date is a different time. Check with your surety company to learn when your bond expires so that you are prepared to renew it on time.
2. Pay the Renewal Fee on Time
Most surety companies require you to pay your renewal fee at least 30 days before your bond expires. Companies require you to do this because of their obligations to report to the state when bonds are about to be canceled. Make sure to start the renewal process at least 30 days in advance to avoid problems.
3. Be Prepared to Pay Your Premium
When you apply to renew your auto dealer bond, the company will complete the underwriting process again. If your credit score has dropped or you have had a valid claim against your bond, you can expect to pay more to renew your bond. Conversely, if your credit and other relevant factors have improved, you might have to pay less than you did for your initial bond. In either case, make sure to have enough money set aside to pay the premium to renew your bond.
4. Renew Your License on Time
In addition to renewing your dealer bond, you must also apply to renew your dealer license. Check with your state to see its renewal requirements, submit all relevant documents, and pay the renewal fees before your license expires.
Applying for a New Auto Dealer Bond
If your bond expires or is canceled, you will have to go through the same application process that you did when you applied for your original bond. You may be required to submit the same types of documents as you previously did, including the following:
• Audited business financial statements
• Personal financial statements
• Bank letter of reference
• Other letters of reference
• Resumes for key shareholders of your dealership
• List of assets and liabilities
The surety company will review your application and the documents you submit. It will also check your credit score and consider other factors. If it decides to issue a bond to you, the surety company will provide you with a free quote. If you decide to accept the quote, you will have to pay the bond premium, which is an up-front percentage of your total bond amount.
If your bond history and credit have declined since the last time you purchased a bond, you might be denied or be quoted a high bond premium. However, if you are quoted a high percentage of the total bond amount, you will either have to accept it and pay it or look for a different surety company to try to get a lower quote to renew your license and continue operating your business.
Renewing your auto dealer bond or purchasing a new one is something you have to do each year to keep your license. By paying your bills on time and being honest when conducting your business, you can avoid bond claims and secure better rates.
About the Author
Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements.