Your Guide to Freight Broker Surety Bonds
Being a freight broker can be a very rewarding vocation. You can learn the tricks of the trade either by attending a freight broker training program or by starting at an actual freight brokerage that has one of their own. Should you choose to establish your own business, this has an added benefit – you can work from the convenience of your own office and a lot of freight brokers do choose that option. Of course, since you will be responsible (albeit indirectly) for people’s cargo, there are a number of regulations you need to fulfill in order to obtain a freight broker license. And a freight broker surety bond is an important aspect of that process. To spare you any potential headaches, let’s carefully go through what you need to know before you get bonded.
First things first. If you are new to the field, it’s likely that you’ve never heard of a freight broker surety bond and are unsure about what it means. Freight broker surety bonds are a type of surety bonds, first introduced in the 1930s as a way to regulate freight brokers’ relationships with their customers. In your case, these are the shipping company and the owner of the freight. The bond is there to make sure that you will not use any unfair business practices towards any of them. You can see a freight broker surety bond being also called an ICC Bond (although that is a dated term now), BMC-84 Bond, Transportation Broker Bond or MAP-21 Bond.
What about BMC-85?
You might have come up with another option, called BMC-85, which is an alternative way of fulfilling the licensing requirement. So before we go on, let’s briefly look at the difference between a BMC-84 bond and a BMC-85 trust fund. The BMC-84 is paid to a surety company in annual fees. If you choose that option you will pay a certain percentage of the total cost of the surety bond that’s required of you. To understand it better, think of it as a line of credit given to your company. The BMC-85, on the other hand, is a lot different. It is essentially a trust fund that requires a minimum of $75,000 posted as collateral to a government agency. That can be really inconvenient because you need to find a huge amount of money upfront – money you could be using to run your company. Additionally, if any of your customers file a claim, it will be processed by the government.
So let’s stick to the more manageable BMC-84 bond. Up until recently (and it’s been this way since the 1970s), the cost of the freight broker surety bond was $10,000, which translated into annual premiums of $500 to $3,000. But all this changed last July 6th when Congress passed a controversial bill called MAP-21 (Moving Ahead for Progress in the 21st Century). One of the provisions raised the total cost of the freight broker surety bond to the much higher $75,000. That meant an increase in annual premiums and unleashed a wave of complaints. Despite the public outcry, the requirement has stayed the same and all freight brokers are now required to post the $75K bond before October 1st. That led to a lot of grim predictions about the freight broker industry and a lot of brokers (especially small and mid-sized ones) thought they’d be forced out of business.
And while surety bond agency are often unwilling to write freight broker surety bonds or require a collateral to do it, there is a solution. Lance Surety Bonds has adjusted its bonding program and is now able to offer bonds to most freight brokers with annual premiums anywhere between $1,800 and $10,000 without a collateral requirement. Most brokers get instant approval, based on two criteria – time in business and personal credit. Of course, since the requirement is brand new and the surety bonds industry assumes a 0% loss ratio, prices are likely to change with time. And the good news is that even high-risk applicants (personal credit of below 650) can qualify without posting a collateral. You might even be able to lower your rates if you can provide cash verification or have strong liquid assets. And if your credit improves, naturally your rates will lower as well.
Now you have the basics of obtaining freight broker surety bonds. You can apply online and get instant quotes and approval. Good luck!