If you dream of opening your own dealership and becoming an Illinois motor vehicle dealer, you will have to meet multiple licensing requirements as established by the Illinois Department of Motor Vehicles. There are several different types of motor vehicle dealers with different requirements according to the particular license type you need. One common requirement for the various types of auto dealers in Illinois is to secure an auto dealer bond as a condition of obtaining your license.
If you do not purchase a license bond to meet the bond requirement under the Illinois vehicle code, your license application will not be approved. Once issued, auto dealer bonds are also not permanent, meaning you will need to renew your motor vehicle dealer bond each calendar year before its expiration date. Losing your Illinois dealer license or failing to renew it could result in the revocation of your license and force the closure of your business. Here is what car dealers need to know about getting a dealer surety bond in Illinois.
What Is an Illinois Auto Dealer Bond?
An auto dealer surety bond is a type of legal contract involving the following parties:
● Principal - The prospective motor vehicle dealer that is seeking a license and needs to secure an auto dealer bond as a license condition
● Obligee - The Illinois Department of Motor Vehicles (DMV), which establishes and enforces licensing requirements and mandates the auto dealer purchase a bond
● Surety - The surety company that issues a surety bond as a guarantee that the principal will follow the law and operate his or her business fairly and ethically
A common misconception held by many Illinois motor vehicle dealers is that a surety bond is a form of insurance. However, a motor vehicle dealer bond is a form of credit and is not a type of liability insurance. If you commit a bond violation, either the Illinois motor vehicle department board or a consumer can file a claim against your bond. While your surety will investigate and step in to pay a valid claim, you will be responsible for reimbursing the surety for any amounts it pays on your behalf.
At the time a bond is issued to you, the surety company will require you to sign an indemnity agreement. This legally enforceable contract establishes your responsibility to indemnify the surety against any claims that might be filed against your bond. If you fail to repay the surety, the bond company can file a legal action against you to pursue damages through the court process.
Instead of protecting you, your car dealer bond is meant to protect consumers and the obligee against your potential misconduct and violations of the law. Violating the conditions of your bond and your auto dealer license could result in the loss of your bond, your license, and your business.
How Much Does an Illinois Auto Dealer Bond Cost?
According to the bond requirements in Illinois for auto dealers, you must purchase a surety bond in the amount of $50,000 for each business location at which you operate your businesses under 625 ILCS 5/5-101(b)(10). For example, if you have two locations for your dealership, you will need to purchase a $50,000 bond for each one.
The requirement for you to purchase a $50,000 surety bond to obtain an Illinois motor vehicle dealer license from the motor vehicle dealer board is not as prohibitively expensive as you might think. You will not have to pay $50,000 up front to purchase your license bond. Instead, you will have to pay a percentage of the total motor vehicle dealer surety bond amount as a bond premium. The bond quote you will receive will depend on the factors evaluated during underwriting to determine your level of risk. Some of the underwriting factors that might be considered include the following:
● Your personal and business credit
● Your business experience
● Your personal and business assets and liabilities
● Your working capital
● Your character and reputation
Your personal credit score is of critical importance. You can anticipate receiving the lowest free quote if you have good to excellent credit. If your credit is fair or poor, you can expect to pay a much higher bond cost. Depending on your history, you might be turned down for a bond. For example, if you have certain types of criminal convictions on your record, you might not be eligible for a bond or a license in the state of Illinois.
If your bond application is approved by the surety company, you will be provided with a free bond premium quote. Your auto dealer bond cost premium will range based on the underwriting factors and your credit score as follows:
|Surety Bond Cost by Credit Score|
|Surety Bond Name||Surety bond amount||Above 700||Between 650-699||Between 600-649||Below 599|
|Illinois Motor Vehicle Dealer Bond||$20,000||$200-$400||$300-$600||$400-$800||$600-$1,400|
● A credit score of 650 plus - Likely premium quote between 1.5% to 3%
● A credit score of 600 to 649 - Likely premium quote between 2% to 4%
To see examples of what your bond cost might be based on your credit score, you should review our surety bond cost guide and use the cost calculator to understand more about the pricing of auto dealer bonds.
How Can I Get an Illinois Auto Dealer Bond?
In addition to paying an application fee and applying for a car dealer license, there are numerous other requirements you must meet to get your auto dealer license in Illinois. One of these requirements is that you must purchase a surety bond for each location at which you intend to operate your car dealership in the bond amount of $50,000.
You can go through a surety company to purchase an auto dealer bond. You will need to submit a bond application and might be asked to submit a few of the following types of documents:
● Legal entity documents filed with the Illinois secretary of state
● Organizational chart for your business
● Bank statements
● Assets and liabilities schedules
● Bank reference letter
● Other references
● Resumes for each key stakeholder
Once you have submitted your bond application and supporting documents to become a car dealer, the surety will complete the underwriting process. The underwriters will evaluate you based on the level of risk the company might face if it approves your bond application. If your application is approved, you will be provided with a free quote for the required bond premium. The pricing you might expect will depend on your credit and the other underwriting factors.
If you agree to the quote, the surety will ask you to sign an indemnity agreement through which you agree to indemnify the bond company against any claims that might be filed against your bond. The company will issue you a bond form and forward a copy of it to the state to meet your dealer licensing requirements. After you have fulfilled all of your requirements for licensing, complete your license application, and pay your license application fee, the state will issue your auto dealer license so that you can legally operate your business. To begin the process, please complete our online application.
Can I Get an Illinois Auto Dealer Bond With Bad Credit?
While your credit score is important for being approved for a bond, it's still possible for you to get a bond even if your credit is poor. You should anticipate paying a much higher premium to secure your bond, however.
Our Bad Credit Program provides a way for prospective auto dealers in Illinois to get bonded. After you receive your bond, try to take steps to improve your credit and build a strong relationship with your surety. If you improve your credit and avoid bond claims, the costs you might have to pay in the future to renew your bond could be lower.
Who Should Get an Illinois Auto Dealer Bond?
If you intend to sell five or more vehicles per year, either used or new vehicles, you are required to get an Illinois motor vehicle dealer license. The state requires the following types of dealers to secure the right license type:
● Franchise dealers that intend to sell both new and vehicles and have a vehicle services department or a contract with an outside services facility
● Used vehicle dealers that only intend to sell used vehicles
● Motorcycle dealers that want to deal in motorcycles
● Mobile home and trailer dealers that want to deal in mobile homes and recreational vehicles
If you plan to operate any of these types of dealerships, you will need to get a license and a bond.
Getting an auto dealer bond in Illinois is just one of the numerous requirements that you will have to meet to obtain your motor vehicle dealer license. Once you get your bond and meet the other requirements, you can submit your license application and pay your license fee to get your license. After you have received your license and your Illinois motor vehicle dealer bond, make sure to comply with the law and avoid engaging in misconduct so that you can continue operating your business.