A freight broker bond, also known as a BMC-84 bond, is a license and permit bond that is required of all freight brokers by the FMCSA during the freight broker registration process. A Texas freight broker bond is meant to protect shippers and motor carriers by compelling freight brokers to comply with their contractual obligations. A freight broker bond is purchased through a surety bond company, who in turn promises to pay in the event the freight brokers fail to meet their contractual obligations.
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What Are License and Permit Bonds?
License and permit bonds are a specific class of surety bond. License and permit bonds are required by government agencies as a pre-licensing requirement before allowing a business to operate legally. A license and permit bond compels a business to operate in accordance with federal, state, and local laws/regulations.
Understanding the Freight Broker Bond Process
Effective October 1, 2013, the FMCSA requires freight brokers to post a $75,000 bond during the registration process.
Freight brokers must complete a freight broker bond application with a surety bond company during the registration process. The freight broker bond premium is paid on an annual basis. The premium amount is determined during the underwriting process and is a percentage of the bond amount. No collateral is required.
Freight Broker Bond Price Calculation
Underwriters consider several factors in determining the price calculation of the premium that must be paid. The most important factors are:
- Credit history/score of the freight broker
- Length of business experience
- Financial strength of the freight broker
The credit history/score of the freight broker is the most heavily weighted factor in the price calculation, but the ability of the underwriter to review financial statements and business experience allows for a more comprehensive analysis of the freight broker’s application. The more detail the underwriter can review, the more likely a freight broker may overcome negative credit history.
Those freight brokers with solid credit histories, experience, and financial strength pay a lower bond percentage than those with poor credit histories, lack of experience, and financial weakness. Bond percentages typically range between 1 percent to 3 percent. That amounts to about $750 to $2,250 annually for those with solid credit histories. Those with poor credit histories will pay between 4 and 15 percent of the $75,000 bond, amounting to about $3,000 to $11,250 on an annual basis.
Like most industries, not all surety bond companies are created equally. The best ones provide a fast turnaround, sell to industry leading companies, and offer more competitive premium rates.
While you are required to obtain a freight broker bond to function as a freight broker, you have the freedom to choose the surety bond company that best suits your circumstances, so choose wisely.