Have you wondered what a Broker Bond is? Also known as a Surety Bond. A bond is purchased through a business to ensure you follow all the rules and regulations for being a broker. It is a guarantee that monies will be paid if there is a default in obligation by the original party. Of course, it must be proven to be a valid charge.
The most obvious reason for a bond is if a broker goes out of business. The carriers that hauled for the broker could then file with that bond company and with proof of service, they could get paid for their shipments. But keep in mind, anytime a carrier believes they are owed money from a broker and have been unable to collect from them, the carrier can file against the bond. The surety or bond business then steps in and makes the determination if monies are due that carrier. If it is determined that the carrier’s demand is justified and the broker still refuses to pay them, the funds come out of the bond amount.
The FMCSA requires a minimum of $75,000. Prior to 2013, it was set at $10,000. Honestly, if a broker goes out of business and carriers try to collect for services, $10,000 wouldn’t go very far. Especially when a heavy haul load could be over $10,000 for a single load. A lot of carriers look for brokers that carry higher amounts than just the required amount. They feel if a broker is willing to put in a higher amount than the requirement than it will be less of a risk for them in case something happens to the broker.
Bonds can be purchased from many different sources. However, I suggest you go with a business that you trust. It could be anyone from Transportation Intermediates Association (TIA) to a recommendation from your local insurance agent.
Bonds may be priced based on a percentage of your sales, from 1% – 5% of your sales depending on how much of a risk your business is. Others offer flat fees from $1,000 to $8,000 annually. You can help lower your annual costs by putting some cash upfront, but this isn’t always necessary. Rarely do they ask that you pay the full amount of the policy upfront. You can help lower the premium costs by improving your credit rating or business practices to show your business has a lower risk.
This is #3 in our Series on Starting a Transporation Brokerage Business. Leave a comment or question below.