Article

Save Money on Your Next Surety Bond

Improving your credit score, demonstrating strong financials and choosing the right agency can drastically reduce the premium on your next auto dealer surety bond.

March 2016, Auto Dealer Today - Feature

by Eric Halsey

As an auto dealer, you face tough competition, a rapidly changing marketplace and regulations at every level of government. You simply don’t have the luxury of ignoring chances to cut costs. Fortunately, when it comes to researching your surety bond, there are several well-traveled routes to real savings.

Whether your license needs to be renewed annually or biennially, there’s no reason not to get a better deal on your bond when your current one expires. That’s why we’ve put together this list of four essential tips for saving money on your auto dealer surety bond.

1. Fix Your Credit to Improve Your Score.

A good or bad credit score can be the difference between paying a premium of 1% to 5% and paying a premium of 15%. So what can you do to improve your credit score?

Besides maintaining good credit in the long term, you should pay off any outstanding judgments, liens, collections or past-due child support. Paying these debts will improve your credit score in reasonably short order and reduce your bonding premium.

2. Demonstrate Strong Financials.

This tip is a bit less well-known, but it can play an important role. Strong financials will lend you a little more flexibility and even allow you to use some creativity to improve your bonding rate. The general idea here is to provide your agency with proof of strong financials.

That may mean financial documents proving that your business is well-run or simply pointing out your experience in the industry. This is one reason why, in general, the longer you are bonded, the lower your rate can become. Avoiding claims for five years, for example, shows you’re more likely to be responsible and avoid claims 10 years down the road.

Finally, if you are not already a U.S. citizen, obtaining your citizenship is another important way of demonstrating your chances for long-term business success and stability.

All of this information will then be assessed by the bonding agency, so it’s important to pick the right one.

3. Choose the Right Bonding Agency.

This is an often-overlooked part of the auto dealer surety bond process. In fact, choosing the right agency can make a huge difference, particularly for those with bad credit. Larger agencies have more flexibility when it comes to underwriting, meaning they’re more likely to find a way to get you bonded.

In addition, a larger bonding agency can often provide useful tools like instant online quotes. These can be hugely helpful when it comes to financial planning around the licensing process, plus it’s just convenient.

Most importantly, however, you want to work with an agency that acts as a claims advocate. A claim is when a customer formally accuses your dealership of violating an applicable law of the state where you do business. Claims can be disastrous for your business.

The right agency will both work to educate you on how to avoid claims in the first place — which is helpful, because the state regulations can be quite complex and difficult to understand — and how to fight them if they come. In the end, it’s always good to have an ally who knows the process inside and out.

4. Educate Yourself.

If you’re reading industry publications, you’re off to a good start. But having the right knowledge of and perspective on the auto dealer bonding process makes a huge difference.

For example, you should bear in mind that a lower rate may not actually save you money in the long run, particularly if your agency doesn’t have the ability to support you when you need them most. Remember how we just mentioned choosing the right bonding agency? Having a claims advocate can save you big in the long run. Always weigh the costs and benefits.

Keep in mind that, in general, a surety bond is insurance you hope you never have to use. It’s best to find a great deal with a top agency, then focus on running your business and avoiding claims. Ultimately, both in terms of your finances and reputation, you’re fully responsible for claims.

By making sure you know the ins and outs of your auto dealer surety bond, you’re ensuring you’ll get the best deal. And if you have your own tips for reducing premiums, please let us know.

What Is a Surety Bond?

Surety bonds are an insurance policy for the “obligee,” that is, the party requiring the bonds. In most instances, the obligee is a government agency and the bond is in place to protect the government and its citizens. That means the bond doesn’t protect you; it protects the people you serve. That’s why its often legally mandated.

The obligee requires the principal (you) to obtain and pay for the surety bond. When performance bond costs are included in the bid, they can typically be reimbursed.

Quick Note: People will sometimes incorrectly refer to surety bonds as an “indemnity” bond (a specific type of bond related to loans) or a “security” bond (a mispronunciation of surety bond and not an actual bond type.)

Eric Halsey is an expert in the surety bonding, automotive and professional certification segments and a regular contributor to JW Surety Bonds. Contact him at [email protected].

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

On-the-Point

Jim Ziegler
Objects in the Rearview Mirror

By Jim Ziegler
The past is right behind us and the future is coming fast. The Alpha Dawg plots a course for your store’s success and shares advice for Elon Musk, Johan de Nysschen, and pre-owned managers.

The Big Talent Drain

By Jim Ziegler
The Alpha Dawg tackles the shortage of talent in the managerial ranks and reflects on Amazon’s rumored foray into vehicle sales, the imminent used-car correction, Hyundai’s plan for the Genesis brand, and the untimely passing of Tammie LeBleu.

A Faster Horse

By Jim Ziegler

Strangers in the Mall

By Jim Ziegler

Opening Observations

Over the Curb