Top 6 Costs of Becoming a Freight Broker
Nearly everything we use in America is shipped to us. Shipping is a complex ecosystem, and the freight broker acts as a middle-person, connecting freight movers like independent truckers with those companies that have loads to ship. Many people are interested in going into business as independent freight brokers for the freedom it affords.
Of course, the natural question is, how much does it cost to become a freight broker? Your total cost is going to include paying for the following: (1) business registration, (2) freight broker authority application, (3) freight broker surety bond, (4) equipment, (5) software, (6) and more.
Since many people become freight brokers after already working in the shipping industry for a few years, they forego expensive training. If that’s the case, and you have some existing connections, expect to roughly pay between $3,500 and $5,000 to get started.
If you’re wondering about the bond requirement or haven’t come across it before, here’s what you need to know. A surety bond is required by the Federal Motor Carrier Safety Administration (FMCSA) in order for you to operate as a freight broker.
The bond is a guarantee to the shipper and the motor carrier that you will follow the rules of the FMCSA, and fulfill your responsibilities as a broker. This guarantee protects the parties involved. It is not insurance for you as a freight broker, but a line of credit extended on behalf of your good business practices.
Here’s a list of all the costs you will have to cover in order to become a freight broker:
1) Your Business Registration: $300+
To operate in your state, you will need to register your business, mostly likely with your Secretary of State. You will likely also need to obtain a tax number and registration from your state Department of Revenue. Moreover, if you plan on working as a carrier, you will likely also need to register at your state Department of Motor Vehicles.
The cost of all of these will vary from state to state. On average, business registrations cost between $100 and $300. Additional registrations such as for a tax number or at the DMV vary widely from state to state.
2) Your Freight Broker Surety Bond: between $938 (1.25%) and $9,000 (12%) annually
In addition to your license, you’ll need a freight broker bond. In 2013, federal regulations raised the bond requirement from $10,000 to $75,000 per year. Fortunately, you only have to pay a fraction of this.
The cost of your bond will depend mostly on your credit, but your financials, experience in the industry, and years in business will also be taken into account. If you have good credit score, you will end up paying between 1.25% and 4% of the total bond cost, which will be somewhere between $938 and $3,000 a year.
If your credit score is lower or “bad”, then you can expect to pay a premium of up to 12%. Luckily, by improving your credit score, you can significantly reduce your bond premiums over time.
Want to know how to lower your premium? See our detailed list of tips on how to lower freight broker bond cost!
3) Equipment: at least $1,000 to start
Equipment costs include everything you need to keep an office running. If you’re going to run a small operation, plan for at least $1,000 to start and $200 a month for expenses. Even the leanest operation will need a fax machine, a computer for each employee, and assorted office equipment.
Monthly expenses will include everything from a broadband internet connection and phone lines to coffee, rent, and keeping the lights on and the water running.
4) Software: around $1,000
Quicken, TurboTax, Microsoft Office Suite—there are plenty of programs out there that will help a company make their business operations easier. You’ll need software to keep your books in order, both to make your life easier each payday as well as when April 15th rolls around.
You’ll need licenses for employees working underneath you. As far as managing your fleet, some apps will let you do that for free, but expect to shell out more for quality tools.
5) Authority Cost: $300
The broker authority is a license that a freight broker must obtain from the FMCSA before going into business. It certifies that a business is qualified and authorized to move freight. Apply with the FMCSA through the Unified Registration System, and fill in the “broker of property” option. The application fee per type of authority is $300.
6) …And More
When going into business for yourself, the rule is to expect the unexpected, and have the money set aside to deal with that eventuality. Your state’s Department of Transportation and other agencies may offer a training-on-demand program, but these can often be prohibitively expensive. In order to save money here, many choose free freight broker training programs and courses.
You can easily apply for a freight broker bond online. Simply complete the bond form at the banner below, and we’ll get in touch with you shortly!
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