The Freight Motor Carrier Safety Administration (FMCSA) requires both freight forwarders and brokers to purchase a surety bond of $75,000 before receiving their freight broker license. These bonds are often referred to as the ICC broker bond or the BMC 84 bond. More information is available at the FMCSA website here.
Understanding the Freight Broker Bond
If you fail to follow the rules established by the FMCSA, a claim may be filed against your bond, which you are responsible for paying. By having the BMC 84 bond, it ensures that you (as the broker) follow the FMCSA’s rules and regulations. If a claim against the bond is made, and found to be valid, the surety bond company will seek reimbursement of any amounts paid. This is referred to as The Principal of Indemnity and is a significant difference between surety bonds and insurance.
One example of when a claim may be filed against your bond is if you (as the freight broker) fail to pay motor carriers in a timely manner. This is an expensive issue if you are a licensed freight broker, and it may put your entire brokerage at risk.
The Actual Cost of Freight Broker Bonds
The price you pay for a freight broker bond will range depends on your personal credit and net worth. Usually, this percentage falls between one and twelve percent of the bond amount ($75,000). The stronger the financial strength and credit of a person or company, the lower the rate. Most people can expect to pay between $1,000 – $1,500 a year. MG Surety works with 25+ bond companies to ensure you get the best rate for your situation.
How to Acquire a Freight Broker Bond
Understanding what the freight broker bond is, is just part of the process. You must also understand why it’s crucial for your brokerage business. You also need to know how to apply for and receive the surety bond.
If you plan to start a new freight brokerage, you must register with the FMCSA to receive freight broker authority. Make sure you have a strong business plan in place before you start.
After registering, acquire the freight broker bond – the BMC 84 – from the surety bond company and make sure the surety bond is filed with the FMCSA. Usually this is done electronically upon approval and payment to the surety bond company. Most bond companies will require three things:
- A completed application found here.
- A business financial statement
- A personal financial statement which can be found here.
However, MG Surety Bonds also works with many companies who can provide approval based on only a credit check.
BMC 84 vs. BMC 85
You have two options to meet the set requirements to become a licensed freight broker. These include:
- Acquire a freight broker bond – the BMC 84 – or –
- Set up a trust fund – the BMC 85
Each of these offer pros and cons depending on the needs of your specific brokerage. Usually, smaller freight brokers choose the BMC 84 since only a percentage of the $75,000 must be paid. This is not the case with the BMC 85, where the entire amount must be paid upfront, which is why this option is more popular with larger freight brokers.
Work with the Professionals
There are many companies online who market these types of bonds but don’t understand surety bonds. As we said earlier, Freight Broker Bonds are not insurance and they are written on the principle of indemnity. That means if the bond company suffers a loss, they will seek reimbursement from the indemnitors. Make sure to follow the rules and regulations set by the industry to ensure you do not face expensive consequences. Also, make sure you are working with a reputable surety bond broker. At MG Surety, we are surety experts and we want to be your bond broker for life! Contact us today.