If you want to become a North Carolina motor vehicle dealer, you will need to meet numerous requirements to secure a motor vehicle dealer license to legally operate your business. One of the requirements you must meet before the state of North Carolina will issue you a license to operate as a North Carolina auto dealer is to purchase a license bond. You must maintain your auto dealer surety bond for as long as your license remains active. If your bond lapses, you could lose your license and be forced to close your dealership. Here is what you need to know about a motor vehicle dealer surety bond and how to get one.
What Is a North Carolina Auto Dealer Bond?
A dealer surety bond is a contract entered into by the following three parties:
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Principal - The auto dealer who is required to be bonded as a condition of licensing
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Obligee - The party enforcing the bond requirement as a license condition, which is the North Carolina Department of Motor Vehicles (DMV)
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Surety - The surety company that approves the bond application and issues the bond to guarantee that the principal will comply with the laws and regulations and conduct business ethically
While you might think that a dealer surety bond is a type of insurance, it is instead a form of credit. Being bonded does not protect a car dealer against liability. Instead, if any valid claims are filed against your bond, the bond company will investigate the claim to determine its validity. If it finds that the claim is valid, the surety will step in and pay the claim. However, you will have to sign an indemnity agreement with the surety company before it will approve your application and issue a bond to you. Through this bond, you will agree to indemnify the surety against any claims. This means that you will have to reimburse the bond company for any amounts it pays on your behalf or face legal action through the courts.
A car dealer bond is designed to protect the obligee and the public against potential fraud, legal violations, and unethical business practices. The obligee and consumers can file claims against your bond if you violate the law, commit fraud, or engage in other forms of misconduct while operating your business.
What Are the Types of North Carolina Auto Dealer Bonds?
There are several types of auto dealer licenses, and the dealer license affects the type of bond that you must obtain. Different types of licenses are issued to both new and used motor vehicle dealers. There are a distributor license, a wholesale dealer license, and a manufacturer license, for example. The type of bond required will depend partially on the type of license being utilized.
There are several types of surety bonds for North Carolina dealers:
License and permit bonds: This trade license is required for practicing in the state. It serves as a guarantee that the business will conduct all operations legally and ethically. License and permit bonds are often issued to those still in the process of obtaining a professional license. During the application for your professional license, you will be required to post a license and permit bond in order to qualify to practice legally.
Contract bonds: These are issued for contractors involved in making bids on projects from public or private sources. This type of bond is only related to the specific project, which differentiates it from the license bond. Contract bonds guarantee the work of contractors, and this protects the project owner in the event of poor performance or failure to complete the work. Examples of contract bonds include bid bonds, payment bonds, performance bonds, and maintenance bonds.
Court bonds: These are occasionally required by an order from a state court. In some cases, a court bond can also be issued as a part of a contract bond agreement. Other types of court bonds include the fiduciary bond and supersedeas bond, or appeal bond. The fiduciary bond is issued to guardians of the assets of a third party, and the appeal bond is required to file a case in an appellate court.
Documents and Licensing Requirements
North Carolina laws require the dealer to hold a bond in order to obtain and maintain a license; however, there are several bond types. The bond application must be submitted with supporting documentation. Expect the business to be scrutinized closely.
The bond for the auto dealer protects the public against any fraudulent practices or legal disputes. Claims can be filed against the dealer for violating any of the laws that regulate this industry. The claims can also be filed by the obligee for any alleged misconduct or fraud committed while doing business as an auto dealer.
There are requirements that must be met to obtain the license and bond:
- Provide a physical address and an established office for your dealership.
- Prepare all business documents, including details of all owners and officers.
- Prepare the corporate charter, if the business is incorporated.
- Prepare to show the organizational chart and structure.
- Prepare bank statements in addition to the schedule of all business liabilities and assets.
- Prepare to show proof of liability insurance for the dealership.
- Reference letters and resumes of all shareholders should be ready to show.
- Obtain proof of passing the required auto dealer licensing course from the DMV.
- Post the correct bond amount for the first business location and any extra locations.
Additional documents will be required by the state in order to transfer the ownership of vehicles. Get ready to have these documents available even after you obtain the license to do business in the state. The state DMV will require these documents directly. This includes items like the vehicle's odometer reading, vehicle inspection report, title application, and an affidavit of facts.
How Much Does a North Carolina Auto Dealer Bond Cost?
The bond requirements for motor vehicle dealers in North Carolina oblige them to purchase surety bonds with a maximum amount of $50,000 for one sales location and $25,000 for each additional sales location. While you might think that purchasing a $50,000 bond sounds like an excessive bond cost, you will only be required to pay a percentage of the maximum bond amount to secure a bond. The percentage you will have to pay is called the bond premium, and it can vary depending on the factors the surety considers during the underwriting process. Some of the factors considered during underwriting include:
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Business and personal credit
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Experience
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Character and reputation
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Available working capital
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Personal and business assets
Out of these factors, your credit score is among the most important. However, if you have had character issues and legal problems in the past, you might be turned down for a bond. For example, if you have convictions on your record for fraud or theft, it might be difficult for you to be approved for a bond or to have your license application approved.
If the surety company decides to approve you for a bond, it will provide you with a free quote for the bond premium. The premium will range based on your credit score and other factors as follows:
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A credit score of 650 and above - Likely premium ranging from 1% to 3%
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A credit score of 600 to 649 - Likely premium ranging from 2% to 4%
If you have average to good credit, this means that you might receive a quote of as little as $500 to purchase your $50,000 North Carolina motor vehicle dealer bond.
| Surety bond name | Surety bond amount | Cost with credit score above 700 | Cost with credit score between 650-699 | Cost with credit score between 600-649 | Cost with credit score below 599 |
|---|---|---|---|---|---|
| North Carolina Auto Dealer Bond - first location | $50,000 | $500-$1,000 | $750-$1,500 | $1,000-$2,000 | $1,500-$3,500 |
| North Carolina Auto Dealer Bond - each additional location | $25,000 | $250-$500 | $375-$750 | $500-$1,000 | $750-$1,750 |
To understand more about the auto dealer bond cost you might have to pay based on the different credit score ranges, you can refer to our surety bond cost guide and consult the cost calculator.
How Can I Get a North Carolina Auto Dealer Bond?
You'll need to get a North Carolina auto dealer bond in the amount of $50,000, meet the requirements for a showroom and sales location from the state of North Carolina, attend a training course, submit a license application, pay the license fee, and meet the other requirements to secure an auto dealer license in North Carolina.
To purchase an auto dealer bond, you can apply through a surety company and submit a bond application. The company might request some documents regarding you and your business to evaluate your application during the underwriting process. Some of the types of documents you might need to submit include:
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Business structure and organizational chart
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Bank statements
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Schedules of assets and liabilities
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Reference letters
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Bank reference
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Your resume and those of any other key shareholders
Your application will be evaluated to determine the degree of risk you pose if the company were to issue you a bond. If it approves your application, you will receive a bond quote for the premium you will have to pay to purchase your bond. The pricing will vary based on your credit score as previously described.
If you accept the quote, you will need to sign the indemnity agreement. The bond company will then issue a bond form to you and send a copy to the state as a part of your licensing requirements. Once you meet all the state's requirements and pay your application fee, you can get your auto dealer license to operate your dealership. To start the process, please complete our online application.
Can I Get a North Carolina Auto Dealer Bond With Bad Credit?
If you have bad credit, it's still possible for you to get bonded. However, you will have to pay a substantially higher bond premium to secure your bond. You can go through our Bad Credit Program to secure your bond. If you work to improve your credit and maintain a good relationship with your surety company, the costs to renew your bond after the expiration date of your current bond might be lower.
Who Should Get a North Carolina Auto Dealer Bond?
If you sell five or more vehicles in your name in 12 months or sell any vehicles that are not registered in your name, you are required to get a used car auto dealer license. There are five types of auto dealer licenses required in North Carolina:
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New vehicle dealer license - For new car dealers who want to sell new vehicles under an agreement with a manufacturer
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Used vehicle dealer license - For used car dealers who sell five or more vehicles per year and only intend to sell used vehicles
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Wholesale dealer license - For those who distribute or sell used vehicles to dealerships and dealers
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Distributor dealer license - For those who distribute and sell new vehicles to new car dealerships and dealers
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Manufacturer license - For those that manufacture new vehicles or import them through a distributor to distribute them further to new vehicle dealers
A requirement of securing an auto dealer's license in North Carolina is to purchase a surety bond in the amount of $50,000 for one sales location and $25,000 for each additional sales location. This means that if you plan to go into the auto dealing business, you will need to secure a North Carolina motor vehicle dealer bond before the North Carolina Department of Motor Vehicles will issue a license to you to legally operate your business.
Purchasing a North Carolina auto dealer bond is one of the license requirements you must meet under the guidelines of the motor vehicle dealer board. Once you know the license type you will need, you can work on meeting the statutory requirements, including your bonding requirement, to get your license to lawfully operate within the state. Auto dealer bonds are not permanent, so you will need to pay attention to your bond's expiration date and apply to renew it in plenty of time so that you can maintain your license.
What Can Dealers Do to Avoid Claims Against the NC Auto Dealer Bond
A bond claim can be made against the dealership in the event of fraud, malpractice, or legal violations. The auto dealer bond is a requirement in order to protect the public against any wrongful actions taken by the dealers. Avoiding claims is very important; a claim is a kind of mark against your business. Reporting from the division of motor vehicles shows that too many claims can effectively run you out of business.
According to the license and theft bureau, dealers must observe many regulations and laws in order to avoid claims:
- Odometers must never be changed.
- Operate from an established salesroom with the proper zoning required for displaying and selling vehicles.
- All documentation for the vehicles must be obtained before completing the transaction.
- Avoid fraud, pay all relevant taxes, and avoid illicit practices.
- Payments must always be made in a timely manner.
- Ensure annual registrations are current through the proper mail service center.
- Observe all dealer license plate regulations and state laws.
- Payments for the license application and other application fees should be made promptly.
Get Your North Carolina Auto Dealer Bond Today
The bonding process is usually straightforward. You can apply online or call us at 866.450.3412 to get your free quote in no time. If you have any questions about your bond application, our bonding experts will be glad to give you a hand in the process.
When you obtain your North Carolina auto dealer bond, make copies for your records, since the original bond form is required along with your dealership license application.
