What is a Wholesale Dealer Bond?
The wholesale dealer bond is a type of license and permit bond. This bond is required of applicants for a wholesale motor vehicle dealer license in numerous states. Wholesale dealers are ones that can only sell vehicles to other dealers, and not to the public.
Why is this bond required?
Wholesale dealers require a surety bond as a guarantee that they will comply with their states' regulations for conducting legal business as an auto dealer.
The bond also functions as protection and financial security to the public. If a wholesale dealer violates state regulations by, for example, committing fraud when conducting vehicle sales, a claim can be filed against their bond.
When a claim is filed, the surety that has issued the bond will investigate the case and extend compensation to claimants for any losses or damages suffered. Such compensation can be as high as the full penal sum of the bond.
To learn more about how bonds function, and why you need to get bonded, see our “What is a surety bond” guide!
See the following sections for more about the cost of these bonds, getting bonded with low credit, bond claims, and how to apply for your bond.
Feel free to call us at 866.450.3412 anytime if you have any questions about the wholesale dealer bonding requirements in your state!
How Much Does the Wholesale Dealer Bond Cost?
The cost of getting bonded depends on the amount of the bond, and on the financial profile of the applicant.
Bond amounts for wholesale dealers vary from state to state. For example:
- Applicants in California require a $10,000 bond
- Applicants in Arizona, Florida, Indiana, Mississippi, Texas, and Wisconsin, among others, need to post a $25,000 bond
- Applicants in Maryland need to post a bond between $15,000 and $150,000
The above are only some examples of different bond amounts for wholesale dealer bonds across the country. Depending on the amount required in your state, the cost of your bond will be equal to a percentage of that amount. That percentage is determined in the following way.
Factors that determine your bond premium
The main factor that influences the bond premium offered to you by the surety is your personal credit score. Applicants who have high credit scores (meaning 700 or above) are typically offered the lowest rates on their bonds.
Sureties also frequently assess other financial indicators, in order to properly determine the bond premium. These may include an applicant's:
- Personal and business financial statements
- Amount and value of assets (liquid and fixed)
- Industry experience and record
Applicants who have an excellent credit score may be able to get their bond for as little as .75% to 1.5% of the total amount of their bond. Applicants with somewhat lower scores can expect to get bonded for up to 3% of the bond amount.
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What about bad credit applicants?
Applicants who have a lower credit score can also apply to get bonded. Such applicants will likely be required to pay higher rates, upward of 3% of their bond amount.
Sureties require higher rates from such applicants because a lower credit score is considered a higher indicator of risk. Still, bond rates are not fixed, and applicants who improve their credit score and financials over time can expect to get increasingly better rates each time they renew their bond.
Want to know more about applying for a bond with bad credit? See our Bad Credit Program page.
How Do Bond Claims Work and How to Avoid Them?
Surety bond agreements are legally binding for the bonded party, also known as the principal. They require the entity seeking the bond to comply with the conditions of the agreement. These conditions typically include the requirement to follow state laws, regulations, and rules that govern the bonded party's line of business.
When a wholesale dealer violates the conditions of the bond agreement, for example, by committing fraud, misrepresentation, non-payment of taxes and fees, or by not delivering a purchased vehicle, a claim can be filed against their bond.
Claims are filed by the harmed party to request compensation for losses or damages. When a claim is filed, the surety that backs the dealer's bond will investigate the claim and determine its legitimacy.
If the bond claim is legitimate, the surety will typically extend compensation to the claimants, thus covering their losses. Such compensation cannot, however, be higher than the full amount of the original bond amount.
In return, the bonded dealer must fully reimburse the surety for its coverage of the claim. This is a standard condition of every bond agreement. In order to avoid the complications created by bond claims, dealers must simply comply with the conditions of their bond and comply with any legal state requirements.
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We will then contact you shortly to provide you with your free bond quote, and any further information about concluding the bonding process.
If you have any questions about getting bonded or about the requirements involved for your state - call us at 866.450.3412!