I am assuming that you already have a basic understanding of the purpose of a surety bond in this article. It is a requirement for brokerages, the funds are in held to help protect Shippers and Motor Carriers.
Up until the end of 2013 the bond requirement for opening your own freight brokerage was a mere $10,000. $10,000 dollars had shown to be a tangible amount of overhead required to start your business as a broker but when the bond went up to $75,000, opening your own brokerage seemed out of reach to most people. In fact thousands of brokerages closed their doors because of the 750% increase! But it didn’t have to be this way, if more people understood their options they would have realized that it is now easier and cheaper than ever to start your own Freight Brokerage. Let’s talk about the two different options that you have for obtaining this required Surety Bond.
First there is a BMC-85. The BMC-85 is a surety bond that you pay $75,000 up front for. It is essentially a trust fund. When you decide to close your doors, you simply go cash it out and walk away. But how many people have an extra $75,000 laying around? Kudos to you if you make that short list of individuals. Thankfully for the majority of people interested in starting a freight brokerage, there is a much less expensive option available to you.
The BMC-84, your second option. A BMC-84 will serve the same purpose for your brokerage but the cost is dramatically less. It is a line of surety credit to you, lent under the conditions that you agree to follow FMCSA regulations (which you have to do anyways…). The fee for this credited version of the bond is about 1.5% annually of the total bond amount if you have good credit. So with good credit you can hold the surety bond in your name for the price of only $1,100 dollars per year. With average to poor credit you are looking at about a 3% rate ($2,200 annually), typically if you are over $2,000 the surety bond company will let you make payments monthly or quarterly. Keep in mind that after one year you can switch companies and refinance your rate, simply by showing that you have been a trustworthy and responsible bond holder.
Now, what if your credit is horrible and you completely lack financial experience? (We know that this does apply for some of you out there) Trust us, someone will give you the bond. You’re just going to have to do some more shopping around. Worst case scenario, someone gives you a rate of 12%. Don’t sweat it! That’s still less than it was before they mandated the increase! 12% is $9,000 in the first year, split up into monthly payments of about $750 – which is the equivalent of moving two to three loads, an amount that should not intimidate any freight brokerage even if you are an independent broker. Plus, after the first year you too are eligible to shop around for a more standard rate of 1.5-3%. I would strongly recommend that after your first year you contact ITS Financial (Internet Truckstop) so that you can be considered as a Diamond Broker, which is basically good street cred. in the transportation industry.
No matter where you apply for your surety bond make sure that you are submitting a Personal Financial Statement along with your application. This will aid you in getting the best rates possible for you. A personal financial statement includes information pertaining to your Cash on Hand, Stocks and Bonds, Real Estate, Life Insurance, Accounts & Notes Receivable, Other Person Property, Annual Income… etc. Here is a list of companies for you to consider contacting for your surety bond. Maybe it’s time to cash out your BMC-85 and start paying for a BMC-84, after all with a rate of 1.5% it is going to take you 68 years to spend $75,000.