If You Want to Be a Car Dealer, You Have to Be Bonded

If You Want to Be a Car Dealer, You Have to Be Bonded

Car dealers that sell luxury vehicles or used cars need to find out their state’s requirements for surety bonds. To run the business, car dealers must fulfill these state mandates that differ in each state. For example, Georgia surety bonds might have a different bonding requirement than Florida surety bonds.

Surety bonds are three-party agreements, and with auto dealers they protect states and customers from auto dealers who violate state laws and regulations. These bonds also guarantee that auto dealers comply with federal laws, local laws and sometimes payments of taxes and judgments. The bond protects customers against fraud or any wrongful act executed by a dealer’s employee.

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To get a license, auto dealers have to get an auto dealers bond, also known as MVD bonds, DMV bonds and user car dealer bonds. Therefore, it’s no surprise that DMV bonds are the most common commercial surety bond.

Since car sales have increased every month in 2010, the tight bond market for auto dealers has eased. Still, it may be tough for some business owners to get the most competitive rates. Poor credit, liens and/or a history of bankruptcy make it far more difficult to get an auto dealer bond.

Tainted credit often means higher premiums, but there are companies that host programs for business owners with mediocre credit. Compared to other commercial bonds, sureties consider DMV bonds to be more high-risk, but since DMV bonds are the most common bond rates tend to be competitive.

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Used car dealer bonds are considered moderately risky. Credit history, financial history and the ability to pay a claim in full are the most important factors for these bonds. Insurance companies and surety bond companies sell DMV bonds. Auto dealers who apply for a DMV bond need to complete an application, submit a credit check and present financial statements.

The surety or insurance company will likely examine performance history, management structure and the company’s ability to flourish in the future when considering granting the bond. Check with a surety company to get a quote on an auto dealer bond.

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