Worst Advice We’ve Ever Heard About Auto Dealer Bonds

When you’re just starting your auto dealership, or need to handle a myriad of tasks while running it, learning more about your auto dealer bonds and how they work might not be your top priority.

So when you need to get your bond required for your state license, you might skimp on doing your own research and trust advice coming from friends or colleagues. But how can you be sure they have the best information about dealer surety bonds and the most relevant advice for your particular situation?

It’s common to see dealers run into trouble because they’ve followed a misconception about auto dealer bonds that a helpful acquaintance offered. Since bonding is important for your business, it’s wise not to rely on hearsay.

Your best strategy is to learn the basics and operate on your own devices when it comes to issues that might cost you your business. That’s why we’ve collected a few really bad pieces of advice about auto dealer bonds that will help you distinguish the truth.

“You can’t choose the best bond, because all auto dealer bonds are the same.”

With this kind of advice, you’re likely to end up paying more for your auto dealer bond – and it’s not guaranteed the bond will be accepted by the state authorities that require it.

The truth is, not all auto dealer bonds are created equal. The validity and coverage of a bond can vary, and it’s crucial for your dealership to have the right kind of bond. It ensures you are legally compliant, and this keeps you out of trouble.

That’s why it’s also important to check the trustworthiness of your surety provider. Obtaining your bond from an A-rated and T-listed surety means your bond is securely backed and guarantees the authority requiring the bond will approve it.

As for the cost, you can save a lot by carefully choosing your surety agency. If it can shop around for secure and certified surety underwriters, it will be able to give you the best rate for your circumstances.

“Don’t even try getting bonded with bad credit.”

It’s not easy to run a dealership when your credit score is far from perfect or when you have a track record of tax liens, bankruptcies or civil cases. It’s likely that you’ll face mistrust again and again, and many doors might close.

But you should not believe the advice that you cannot get an auto dealer bond with bad credit and you shouldn’t even waste time trying. Accepting that bonding is impossible with bad credit means you cannot legally obtain or renew a dealer license, which practically leaves you out of business. And not even trying to get bonded is certainly a defeatist approach.

While higher-risk applicants have a harder time, there are still bad credit programs and other alternatives that help dealers in such situations. Often dealers need to pay a slightly higher price for the bond, in the range of 5%-15% of the bond amount. This compensates for the risk the surety takes. Still, getting bonded with problematic finances is possible and certainly not out of reach for dealers.

“Surety bond claims are nothing to worry about, because the bond covers you.”

This piece of advice is a truly harmful one, even if it comes from the most well-meaning friend. You can and will get in trouble if you don’t follow the obligations set forth with your bond.

Dealer bonds are not insurance for your business. They are an extra layer of protection for the general public, because they guarantee your compliance with applicable legislation. Thus, if you are accused of wrongdoing or fail to make your due payments, a claim can be made on your bond.

Some people would lead you to think that in case of a proven claim, the surety will cover all penal expenses, so you’re safe. Indeed, the costs will be paid initially, but then you’ll need to reimburse the surety. That’s what the indemnity agreement that accompanies the bond clearly states. It’s also logical, because otherwise there will be less incentive for dealers to follow the conditions of their bonding.

Others will tell you that when a claim is filed against your bond, you should fight, because “settling a claim means defeat.” This, however, is a futile approach based on pride. If you’ve transgressed from the legal practices, you don’t have too much room to maneuver. This means that in most cases, settling a claim can save you from completely losing your business.

The wisest policy is to avoid claims as much as possible, as they can harm your business’s finances and reputation. If you end up with a claim, consensual settlement is usually the way to go.

Advice from a good friend often is priceless, but when it comes to dealer bonds, it could be costly. What is your experience with bad advice on bonding? Tell us your story in the comments below.

Vic Lance is the founder and president of Lance Surety Bond Associates.