SURETY BONDS FAQ
How would I know if I need a dealer surety bond?
The issuing governing entity controls whether a dealer bond is mandated and determines the required bond limit. The surety company issues a bond that is signed by their power-of-attorney, stamped with an embossed seal, and then notarized, thus validating it as an official document. Oftentimes bonds are required before business owners can get a license to operate in a certain city or state. It is important to note that the government entity issuing the license is provided the Dealer Bond and activate a claim against the bond if the licensee is not fulfilling the obligations voluntarily.
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What is a dealer surety bond?
A Dealer Bond is a legal contract that guarantees and protects customers. The Dealer Bond promises to provide aid in the recovery of financial loss resulting from dealer fraud or unethical business activity. Most states require Dealers to procure a Dealer Bond in order to operate legally. The Bond also acts as a line of credit and assists in regulating the Dealer industry.  A Dealer Bond conveys credibility to both current and future customers. The typical participants of a dealer bond are: Obligee - The government entity or individual requiring a “principal” to be bonded. Principal - The primary person who is required to be bonded. Surety - financial guarantor who assures the “obligee” that the “principal” can perform the task. Let our professional and highly-skilled staff support you through the most confusing part of the dealer licensing process. NOTE: The Dealer is responsible for reimbursement of any paid bond claim.
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What’s the purpose of a California auto dealer bond?
All states have a specific division created to deal with overseeing the licensed vehicle dealers doing business legally. In states like Arizona, this division is called the Motor Vehicle Department (MVD) and in states like California, dealers will recognize the name Department of Motor Vehicles (DMV). The majority of the DMV's require there to be certain protections in place to safeguard the general public (or the retail transactions). That said, not only will a used car dealer bond offer some type of recourse to a buyer who may have become the victim of fraud, but it will also provide protection to other dealers. The transactions done between 2 dealers are called wholesale transactions. The state of California will allow a private-party to sell 5 vehicles per year before they are required to obtain a dealer license (wholesale or retail).
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How would someone even apply for a dealer bond?
The applicant must be approved by a surety bond company. The bonding company is making a promise to the obligee (the DMV in this case) that the dealer will follow applicable states and federal regulations and pay all their bills. You can apply for your surety bond seamlessly on our website. Regardless of your situation, we feel that you will really appreciate the high level of experience and the deep care we take with every dealer that comes our way.
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What bond limit do I need if I am going to be a California Used Auto Dealer?
This is the #1 most common question we receive even though it's actually a DMV pre-licensing test question. The answer is a little complicated but hopefully, this makes sense. There is a carve-out in the law that allows a $10,000 bond for motorcycle-only retail dealers. The only additional exception is made for wholesale-only dealers that are selling less than 25 vehicles per year. All other wholesale, auto broker, or retail dealers need a $50,000 bond.
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How much does a surety bond cost?
Surety bond premiums vary due to the following reasons:
  • Surety bond limit ($10,000 or $50,000 in California).
  • Credit Score. The Experian Credit Score is what most surety bond carriers will rate your bond based in 2018.
  • Application and Financial Credentials. Financials are usually not used for California Car Dealers thankfully.
  • Whether you finance or pay in full. We have a payment option for some of our auto dealer bonds depending on the carrier that is writing that surety bond.
Bond premiums can range between 1% and 15% of the bond limit. Complete our quick and easy application today. It's FREE!
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How could I reduce the cost of my Auto Dealer Bond?
The most common reason we see for a high-priced bond is the dealer not having established credit. In this scenario, no credit is basically the same as bad credit. There are a few reasons why folks don't have established credit when they are getting their dealer license. Simply being young and not having loans that have been set up through a bank may be the most common. The other reason that is common with Used Car Dealers is that the individual likes to pay for everything with cash. Some folks buy into the logic that they never want to buy anything that they can't pay for on the spot. While that is a great approach, it doesn't help establish credit. The process of building credit will take some time but getting a credit card with a very low limit can help quite a bit. Buy $25 - $50 worth of items every month and pay the card off within 2 or so weeks of the charges. With about 6 months of this process, you will be in a good position to call your credit card company and ask them to increase your credit limit. Then keep doing the same thing. The fact that you have never been late on a single payment will look great. Also having available credit that you are not utilizing will also improve your overall credit profile. You should see a nice increase in your credit score with this strategy and will be in good shape to renew your bond at a much-reduced cost as your Experian Credit Score improves.
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What date should I make my dealer bond active? In other words, when should my bond start?
Your Auto Dealer Bond should be active by the time you plan to see your DMV inspector to get licensed. For instance, if you place to the see the inspector on the 3rd Thursday of the month, your bond should be active on that Monday or Tuesday latest. Most dealers like to get the most for their money so they don't want to pay for any dead time but this is strategy could save you as much as a week of time as you will read about in the next question.
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Why does my car dealer bond need to be active prior to my appointment date with the DMV inspector?
The DMV inspectors workloads can vary quite a bit and on occasion. It's usually as simple as that. The inspector will get through more work than they originally had scheduled and have some extra time. Why? Potential dealers often times submit incomplete packages that have to be bypassed. Imagine that you were originally scheduled for a Thursday appointment. But if your inspector has a break in their schedule, they may call you on a Tuesday to come in. This means if you have everything in order, you get licensed 2 days faster. This puts you at the action this week instead of next week!
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What types of surety bond do you offer?
If you need a bond, we can secure it! Some risks and bond types are more difficult than others but this is all we do and we do it well. Here are just a few of our most frequently requested surety bonds: Motor Vehicle Dealer, Immigration Consultant Agents, Registration Services, Artisan Contractors, Car Washes, Vehicle Verifiers, Auctioneers, Freight Brokers, Electrical Contractors, Mortgage Brokers, & Pawnbrokers.
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What is a surety bond rider?
A Dealer Bond Rider is for amendments made to the original bond. The most common California bond rider is for changes to the business name or address. When your inspector is requiring a bond rider from you, your current bond is basically inadequate without a modification. Once the proper change is made, the DMV will recognize your $10,000 or $50,000 bond accordingly. Contact our office immediately after learning that a Bond Rider is required.
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What does a car dealer bond cover?
A bond is going to cover losses or claims that an auto dealer could generate. The possible claimants tend to the be the DMV for incurred fines and late fees that dealers rack up. Dealer customers are usually next up on the list of potential claimants. When we say dealer customers, this includes the public or other dealers. Wholesale dealers that sell vehicles to other car dealers often do so on hand-shakes after a certain level of trust is built. This type of arrangement can lead to claims if that wholesaler gets into a financial pickle. Those hand-shakes are suddenly not worth anything and claims arise. Auto Auctions, banks, and other lending institutions are also another large source of bond claims in 2018. These claims happen when DMV dealers default on their loan payments.

Surety Bond Language required by the DMV:

This is an excerpt taken from the Occupation License Form 25 (aka OL25): WHEREAS, section 11710, Vehicle Code, requires that the Principal file or have on file with the Department a bond in the sum of $50,000 and this bond is executed and tendered in accordance therewith. NOW THEREFORE, the conditions of the foregoing obligation are that if the Principal shall not practice any fraud or make any fraudulent the representation which will cause a monetary loss to a purchaser, seller, financing agency, or governmental agency; and, shall not fail to comply with conditions set out in section 11711, then this obligation is to be void; otherwise, it is to remain in full force and effect.
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