Securing Auto Dealer Bond, Even With Bad Credit

Dealers who have a poor financial track record may feel as though they aren’t able to get an auto dealer bond, but that simply isn’t the case.

Eric Weisbrot

March 21, 2018

3 Min Read
Eric Weisbrot
Eric Weisbrot.

Owning and operating an auto dealership can be lucrative, given the constant need among consumers for new and used vehicles.

However, maintaining the success of an auto dealership takes time, sweat equity and capital. In addition to securing an auto dealer license as part of the compliance process with the state where the dealership is located, auto dealers must also have the appropriate surety bond in place to conduct business.

An auto dealer bond may be called an automobile bond, a car dealer bond, a motor vehicle bond or a wholesale bond, but regardless of its name, it is a necessary part of doing business.

Dealer bonds offer a guarantee to customers and the state that the dealership will comply with industry regulations. These bonds come at a cost to the dealer, with the total out-of-pocket expense dependent on several factors including personal credit history.

Dealers who have a poor financial track record may feel as though they aren’t able to get an auto dealer bond, but that simply isn’t the case. Here are a few tips for securing one despite bad credit.  

Fix What You Can

Auto dealer bonds are meant to protect customers against bad business practices, and while the surety company guarantees payment for eligible expenses up to the bond limits, the dealer is required to pay those funds back.

Given this relationship, dealers are expected to have a strong financial history, measured by their credit score. Because of the correlation between personal credit and auto dealer bond qualification, having a high credit score is important.

But if a dealer hasn’t had the best track record with money management in the past, it is necessary to work on improving his or her credit score before applying for an auto dealer bond. Fixing credit takes time, but there are simple things that can be done to make a difference quickly. Checking your credit report for errors, reported debts that have passed the time limit, or paying down collection accounts or high credit card balances all make a difference.

Understand Pricing Terms

The good news is that dealers aren’t required to pay the entire amount of the bond, but instead a percentage of the total coverage. Because auto dealer bond pricing relies heavily on how much of a risk a dealer poses to the surety agency providing the bond, the better the credit the lower the price.

The most qualified dealers can secure an auto dealer bond for 1% of the bond amount, but those with lower credit often pay a higher percentage – typically no more than 15%. Before applying for a new auto dealer bond, be sure to recognize where your credit stands and how that will impact the total price you pay.

Work with a Strong Surety Agency

Securing an auto dealer bond is possible with bad credit, but dealers have a better chance of getting a lower cost bond through a surety agency that understands credit problems are common. A surety agency that offers access to many bond providers is a smart route to go, as they can help the dealer find the best-fit bond based on their credit score and history.

A surety agency that provides resources to auto dealers, from getting licensed to staying compliant, as well as assistance should a claim against a bond take place is a strong choice for auto dealers.

When you have bad credit, it may seem as though securing an auto dealer bond isn’t a viable option. Fortunately, taking small steps to improve your credit score by removing errors or paying off debts, understanding how bond pricing works and partnering with the right surety agency can help you secure an auto dealer bond even when credit is an issue.

– Eric Weisbrot is chief marketing officer of JW Surety Bonds.

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