Top 7 Costs of Becoming a Freight Broker
Nearly everything we use in America is shipped to us. Freight shipping is a complex system and freight brokers act as an intermediary, connecting freight carriers 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:
- Business registration
- Freight broker license application
- Freight broker surety bond
- Insurance policies (optional)
- Office equipment
- Brokerage software
- Freight broker training
To operate in your state, you will need to register your business, most likely with your Secretary of State. You will likely also need to get 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 Transportation or Department of Motor Vehicles (DMV).
The cost of all of this will vary from state to state. On average, business registrations cost between $100 and $300. Additional registrations such as for your tax number or at the DMV vary widely from state to state.
1) Your Business Registration: $300+
To operate in your state, you will need to register your business, most 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) Freight Broker Authority Cost: $300 Per Authority
The freight broker authority, or your freight broker license, is the legal permission that you must obtain from the Federal Motor Carrier Safety Administration (FMCSA) before going into business. It certifies that you are qualified and authorized to act as a broker of freight and/or a carrier.
There are two types of freight broker licenses: broker of property and broker of household goods. You can apply to get both types of authority as well as a motor carrier authority if you plan to also move freight with your own trucks.
The application fee per type of authority is $300.
3) Your Freight Broker Surety Bond: Between $938 (1.25%) And $9,000 (12%) Annually
In addition to your freight broker license, you’ll need to get a freight broker bond. The amount of your bond is $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 and experience are also taken into account.
If you have a 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. See the section at the end of this article for tips on how to lower your surety bond premium!
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4) Cargo And Liability Insurance Policies: $1,500 Per Year Or More (Optional)
Unlike motor carriers, freight brokers are not required by the FMCSA to get cargo, liability, or property insurance!
Yet, getting these types of insurance policies is generally considered a good thing to do. They can protect you in case the freight gets damaged and a carrier does not take responsibility. Moreover, they function as a type of safety net or guarantee and grant you greater legitimacy in front of shippers.
Typically, cargo insurance policies cost about $1,500 per year, and liability and property policies are also around that amount. If you have employees, you will also need to obtain workers’ compensation insurance – this is a standard business requirement on the state level.
5) Office 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 printer and fax machine, a computer for each employee, a telephone, and other 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.
6) Brokerage Software: $1,000+ Per Year
There are two main types of software you may need to run your brokerage.
One is a Transportation Management System (TMS). This will help you to lead your operations, take care of accounting, and keep your books in order, as well as analyze performance and profitability. The other is a so-called Load Board which can help you find carriers for your loads.
Depending on the complexity of the system you need, either of these will cost at least $1,000 a year or slightly more. If you want a very complex system, you should expect to pay double or triple that amount.
7) Freight Broker Training: Between $300 And $1,500 (Optional)
You are not required to get freight broker training, however, it can be beneficial in case you’ve never worked as a broker or as a motor carrier before. A training course will run you through the basics of how to manage your brokerage, how to remain compliant with legal requirements, and more.
Training course costs vary widely, depending on the amount of material you are provided and the duration of the course. The cheapest courses start at around $200-$300, whereas the most expensive ones can cost as much as $1,500 or more.
To learn more about getting training, have a look at our guide about the top freight broker training experts!
Bonus: How To Lower Your Freight Broker Bond Cost
Your surety bond cost is one of the main costs associated with becoming a freight broker. Here are a few tips on how you can reduce the cost of getting bonded.
Tip #1: Make Sure You Have A Perfect Credit Score
Surety bond premium rates are based on your business’s credit score, among other factors. Improving your credit standing will make you less of a risk in the eyes of the surety company.
Tip #2: Demonstrate Your Industry Experience
If you have extensive industry experience and you are operating an established business, make sure to include this information in your application. This will surely help you save money on your bond.
If you have no industry experience, it is better to gain some knowledge from an existing freight brokerage first.
Tip #3: Pay Your Dues
Pay all of your civil judgments, tax liens, collections, overdue child support, and anything else which may make your line of credit look bad. This way, your business will not be considered a liability to the surety company and you will get a better quote on your bond.
Keep in mind, however, that if you have late child support payments or open bankruptcies, surety bond companies can deny underwriting the bond.
Tip #4: List Your Assets
Presenting the surety with information about your capital, collateral, licensure, and business structure can help lower your premium.
Listing your assets will demonstrate your ability to run a stable business. Also, don’t forget to indicate all assets in your financial statements.
Tip #5: Get a US Citizenship
This may seem like a longshot for many business owners, but if you are not a US citizen and somehow are presented with the opportunity of becoming one, you should consider taking it. Obtaining a Green Card will tremendously lower your freight broker bond cost.
Becoming a US citizen, if you are not one, will demonstrate to your bond company that you have solid plans to operate your freight brokerage in the country long-term.
Tip #6: Choose The Right Surety Bond Company
Which bond company issues your bond is very important because different companies can offer different degrees of financial security and guarantees. It is advisable to get bonded only with A-Rated and T-listed bonding companies. You can learn more about the different types of companies and why all of this matters on our surety bond companies page.