Being a licensed freight broker comes with many opportunities as the transportation and logistics market continues to expand. However, freight brokers also carry many responsibilities, including meeting certain licensing and bonding requirements. A freight broker bond is one of these responsibilities, as it provides some protection to the customers that interact with brokers against business practices that go against current regulations.
The requirement to secure a freight broker bond extends to all licensed brokers, and it comes at a cost to the business. Fortunately, there are ways to reduce the cost of a freight broker bond, whether a broker is just getting started in the business or has been in operation for several years.
Understand the Difference Between a Bond and a Trust
Freight brokers have the option to choose between a freight broker bond and a freight broker trust when meeting licensing requirements. Understanding the difference between the two can save brokers a significant amount of money. A freight broker trust, known as BMC-85 Trust Fund, is an account established with a trust company or custodian that holds the full $75,000 requirement within the account. Freight brokers pay this amount upfront to fund the trust, and there are often maintenance and management fees assessed by the trust company every year.
As an alternative and less expensive option, licensed brokers can apply for an secure a BMC-84 Freight Broker Bond. A bond does not require a broker to pay the full $75,000, but instead, brokers pay a premium calculated as a percentage of the total bond amount. This can save freight brokers money both initially and over time.
Check Your Personal Credit
One of the ways surety companies calculates the cost of a freight broker bond is by reviewing an individual’s credit. Evaluating the financial track record of payments to other creditors, negative items like tax liens or court judgments, and management of credit accounts is essential to determine the risk a surety takes on when providing a bond to a broker. When negative credit items are present, the cost of a freight broker bond is higher.
Brokers can help reduce the cost of their bond by checking their credit and cleaning up any errors in advance. Having a strong credit picture gives surety companies some peace of mind that a broker is a minimal risk for bond claims in the future, and this decreases the price paid for a freight broker bond.
Make Sure Accounts are Current
Another strategy to reduce freight broker bond pricing is to ensure that both business and personal credit accounts are up-to-date. Paying off past due balances on credit cards, liens, or business debts helps to show the surety company the broker is working to improve his or her financial standing. Having fewer outstanding debts can make it easier for a surety company to approve a freight broker bond with a lower price tag.
Provide Accurate Financial Statements
Freight brokers may also be asked to provide detailed financial information regarding their business. Documentation such as a business balance sheet, income statement, or cash flow statement may be requested as part of the application process. These documents need to be up-to-date with accurate financial information so that the surety company can get a clear and concise picture of the freight broker’s business. If a broker doesn’t have these documents or they have not been updated in the recent past, it may be worth employing a bookkeeper or accountant to clean things up before applying for a freight broker bond.
Work with the Right Surety Company
Licensed freight brokers can take one or more of the steps mentioned above to lower the cost of their bond, but one of the most important components of the process is partnering with the right surety company. Strong surety companies will have a solid understanding of the freight broker business and market, as well as the requirements for getting a bond in place.
Freight brokers should focus their attention on surety companies that work with several different bond providers, including those who cater to individuals with less than perfect credit. Having a large number of bonding options gives freight brokers the upper hand in ensuring the price they pay for a bond is appropriate for their circumstances.
Fortunately, freight broker bonds must be renewed each year, so if a broker has a hard time getting an affordable rate initially, there is an opportunity to implement these strategies to secure a lower cost bond in the future.