Free Investment Advice

Source: dealerclass.com

What are bonds? The type of dealer bond that is required is also known as a “Surety” bond.  A bond protects the public.  For example, if you commit fraud, your customer might sue you and collect money from your bond company to satisfy the judgment.

Also, if you owe the DMV money, the DMV can collect from your bond.  For example, if you bounce a check to the DMV and refuse to pay, the DMV can collect from your bond.  A bond also protects other businesses who you do business with as a dealer.  For example, if you buy a car at a dealer auction and refuse to pay for it, the auction will take money from your bond.

Why do you need one?

You need one because the DMV requires a bond in order to get a dealer license.  In other words… It’s the LAW!

What bond amount is required?

You need a $50,000 bond for a retail license.  If you are going to only be a wholesaler, your bond amount needs to be for only $10,000 if you transact less than 25 cars per year.  If you are a wholesaler and transact in 25 or more cars per year, you will need to up your bond to $50,000.

How much does a bond cost?

The going rate for a $10,000 bond is only about $300 per year.  The going rate for a $50,000 bond is between $800 and $1,500 per year depending on your credit.  For example, let’s say your bond premium is $1,000 per year.  WOW! That’s only $83.33 per month!  Bonds are more affordable than you think!  All you need to do is sell one car and the profit will pay for your entire bond.

What if you have bad credit?

In general, the better your credit is, the cheaper your bond.  If you have horrible credit such a bankruptcy, there are still bonds available, but they will cost closer to $1,500 per year instead of closer to $800 per year.  If your credit is the worst there is, consider getting a co-signer or a business partner with good credit.  The DMV allows you to put multiple owners on just one dealer license!

Where do you buy a bond?

You can look in the yellow pages under bonds and you will find tons of companies.  However, bond companies in the yellow pages tend to be pricey.  In class, our real dealer instructor will supply you with contact information to the bond company he uses.  The truth is DEALERS KNOW WHERE THE CHEAP BOND COMPANIES ARE AT!

Can you be your own “bond company”?

Yes!  The DMV allows you to deposit $50,000 in your bank in the form of a Certificate of Deposit.  This satisfies the dealer bond requirement.  So if you have extra equity in your house, this may be an option.  However, only post a cash bond as your last resort - when you post a cash bond, you can’t touch the money until 3 years after you end the business, and that won’t happen since you’ll probably be a dealer for a lifetime!  You’re better off going through a bond company and using the extra cash to buy cars.