Car dealers frequently approach our surety-bond agency with the following question: “How can I get a lower premium on my auto dealer bond?”
Even if you paid a high premium one year, there is more than one thing you can do to pay a much lower premium the next. Here are seven ways you can get a better price when getting an auto dealer bond.
No.1: Boost Your Credit Score
Let’s start with the most crucial element. There’s no denying a business owner’s personal credit score is the most important thing that determines the auto dealer bond premium.
There’s an easy explanation for that. Surety-bonding companies want to evaluate the risk they are taking when underwriting each individual bond.
They take an applicant’s credit score as a tool for evaluating that risk. If you are looking to lower your premiums, taking steps to improve your credit score will yield the best results.
No.2: Get as Much Experience as Possible
Another thing sureties want to know is how much experience you have as an auto dealer.
Sometimes, even if you have a less-than-perfect credit score, submitting a resume that shows rich experience will be able to get you a lower premium.
That means sometimes it’s better to accept a high premium and stay in business rather than stop your operations, as this will count as experience when you have to renew your auto-dealer bond and license the following year.
No.3: Show All of Your Financial Statements
Your financial situation is a strong determinant of the premium on your auto-dealer bond. The better it is, the less of a risk the surety will think you are.
Therefore, do your best to show strong personal or business financial statements. Liquid assets or large amounts of cash also will contribute favorably.
That said, if any of your clients or partners owe you money, try to get them to pay you before you apply for the dealer bond, as uncollected debts will not count toward your financial statements.
No.4: Pay Bills and Dues On Time
Just as it is important for you to collect what others owe you, it is important for you to pay your own debts on time.
First, it boosts your credit score, which means lower premiums. Second, if your tax liens, civil judgments or collections are not paid, your surety will see you as a high-risk applicant. This is guaranteed to raise the premium on your auto-dealer bond.
No.5: Choose Your Agency Carefully
Surety-bond companies usually don’t work with the public. That’s why to get your auto-dealer bond, you need to apply through a bonding agency. Your choice of one is important.
You need one that works with many partnering sureties. This guarantees your agency can ask for a quote from many different places based on the information you provided.
When they look at all the offers, your agents will hook you up with the surety that offers the lowest premium.
No.6: Make Sure Your Agent Uses a Soft Credit Inquiry
Are you aware of the difference between a hard credit inquiry and a soft credit inquiry? Each time your credit score needs to be checked by an institution, they will make a credit inquiry.
It’s important to verify that your surety bonding agent is only doing a soft credit inquiry, as this is recorded on your credit report, but does not affect your credit score in any way.
A hard credit inquiry, on the other hand, stays on your report for two years and likely will lower your score a bit.
No.7: Stay Away From Claims
Doing your best to avoid claims is important not only because a claim under your name will cost you a lot of money and increase your premium, but because a claim on your history also may lead a surety to reject your application and refuse to sign your auto-dealer bond.
Even if you have a serious dispute with a client, try to resolve it before they decide to file a claim. If worst comes to worst, and you fail to resolve the conflict, make sure you keep records of all of your interactions, as these may tremendously affect the outcome of the claim.
If you do everything right, you can lower your premium up to 50%, so it definitely is worth the extra effort.
Todd Bryant is the president and founder of Bryant Surety Bonds. He can be reached at bryantsuretybonds.com.