To get an Indiana wholesale dealer license you need to meet very specific licensing requirements. Anyone looking to launch their own operation should do careful research. In addition to them, in August, the Auto Dealer Services Division issued the Emergency Administrative Rules, which will be in effect while the Division is drafting the permanent ones. Let’s go through some of the most important steps in licensing applications, including the mandatory, but often confusing, auto dealer bonds.
To be an Indiana wholesale car dealer, the state requires you to sell at least 120 vehicles or more in a given 12-month period although, at some point, it could be bypassed, if the establishment hasn’t violated any of the rules. To satisfy the requirements your dealership should be covered by business liability insurance, have a Registered Retail Merchant Certificate, a federal ID number and be in good standing with the “bureau of motor vehicles, the department of revenue, the state police, and the secretary of state”.
To verify that you have a valid business address, you must subject yourself to a mandatory investigation within 120 days of receiving your Indiana wholesale dealer license. Finally, an important requirement states that you cannot sell vehicles to the general public.
Amid the usual requirements regarding the office and the lot, the Emergency Rules introduce a few quite technical changes in Section 17. It’s not a bad idea to familiarize yourself with the section in detail so you don’t run into any problems.
After you have satisfied these requirements, you are almost ready to file your application. The final step is obtaining the auto dealer bond.
The Auto Dealer Bond
An auto dealer bond is required for all wholesale and retail dealers in Indiana. It is a commercial type of surety bond – a contractual agreement that is put in place to protect your customers. As with other surety bonds there are three sides to the agreement – the obligee (your dealership), the principal (your customers and the state) and the surety (a bonding company).
When you sign the agreement you essentially promise to abide by all state laws and regulations concerning your industry, as well as to do ethical business when dealing with your customers. When underwriting the auto dealer bond, the surety bonds company guarantees that you can fulfill that promise. In case you don’t and there’s a claim against your dealership, you and the surety become legally responsible for covering all financial losses.
Indiana requires wholesale auto dealers to post a $25,000 surety bond. Fortunately, auto dealer bonds aren’t the same as collateral, so you don’t have to tie up such a big amount of money. Rather, you pay an annual premium, which is a percentage (generally 1% – 5%) of the total cost of the auto dealer bond. Regardless of when you post it, the bond must be renewed each year or your license will be rendered invalid.
The exact cost of the bond will be determined by the surety bonds company after they look at your personal credit score and other information they deem relevant. When underwriting an auto dealer bond, sureties assume a 0% loss ratio, so a rough estimate of how profitable your business will be, as well as your dependability (as judged by your credit score) are the most important assets when estimating the price of your bond.
Getting an Auto Dealer Bond with Bad Credit
For the reasons stated above, people with a bad credit score (650 or below) and new business with no previous credit history are considered high-risk applicants. They may have a harder time obtaining an auto dealer bond, but it’s far from impossible – surety bonds companies will simply ask for a slightly higher annual premium, typically 5% – 15% of the total bond amount.
Sometimes, a small cash collateral might also be required for added security. But as your business operates and there are no claims against you, you can expect to see the price of your auto dealer bond fall each year. There are only two conditions in which sureties will definitely refuse to underwrite a bond and they are an open bankruptcy and a late child support payment.