Questions about Freight Broker Bond Answered
There are two methods in obtaining a freight broker surety bond to become a licensed property broker with the FMCSA. One is a BMC-84 surety bond and the other is a BMC-85 trust fund . Both of these can be bit confusing for freight brokers and in some cases, many companies offering these bonds can be terribly misleading. They may seem the same but in actuality they are completely different. According to the FMCSA, a freight broker must be covered either by a BMC-84 or a BMC-85 if they are to operate as a property broker. Both of these bonds are meant to protect the broker in case a claim is brought against him, but they go about it in different ways.
What is a Freight Broker Bond Trust Fund (BMC-85)?
A BMC_85 is a trust fund that requires the freight broker to have at least $75,000 worth of collateral held by the trust fund company. Trust fund companies typically require the full $75,000 to be posted upfront. The trust fund company will manage these funds and they can not be touched while the fund is active.
BMC-85' normally cost around $1,000-$2,000 per year. Also in addition to the cost of the yearly premium, you are required to post $75,000 worth of collateral to a trust fund company. This is usually difficult for new freight brokers to do just starting out.
What is a Freight Broker Bond (BMC-84)?
The Freight Broker Bond (BMC-84) is a license surety bond required by the Federal Motor Carrier Safety Administration (FMCSA). The bond is required of businesses intent on obtaining a property broker license, from the FMCSA. The bond provides a form of protection for motor carriers hired by the licensed broker. The bond protects the payments due the motor carrier for jobs completed for the broker. The FMCSA Freight Broker surety bond requirement is continuous, meaning that as long as the operating authority is in place, the surety bond requirement remains as well.
Freight Broker bond has a $75,000 bond penalty (bond amount).
Freight Broker bond are sometimes referred to as ICC Broker bonds. The Interstate Commerce Commission (ICC), an abolished federal agency, was at one time the agency that administered motor carrier licensing. The ICC was abolished in 1995. Motor carrier licensing administration responsibilities were transferred to to the FMCSA, a division of the Department of Transportation (DOT).
What does the Freight Broker Bond do?
Freight broker bond provides a form of recourse for a motor carrier hired by a broker. If a motor carrier has not received payment for a job for which payment is due, potentially, a claim can be made on the surety bond. The Surety, the company providing the guarantee behind the bond, if unable to remedy the situation, would be required to make payment up to the bond penalty amount. The surety would then attempt to collect the paid claim amount from the broker. Ultimately, the broker is responsible for any amount paid out on a claim.
How much does a Freight Broker Bond cost?
Freight Broker bond rates vary greatly depending on the qualification of the bond applicant/s. The rates are determined based on various factors which include credit standing and may include financial standing as well.
The best way to get a truly accurate quote for a Freight Broker Bond is to apply for the bond and let the underwriter review the request and put a quote together.
LFS will always try to help you get the best rate for any surety bond request. In instances where the rate is high to start due to challenged credit, LFS can help you remarket the bond for a lower rate if there has been an improvement in credit and/or financial standing.
What is needed to apply for a Freight Broker Bond?
With there being a standard bond amount and an electronic method of filing the bond, there are no special requirements needed to apply for the freight broker bond and get a quote in most cases. The MC number, the operating authority applied for with the FMCSA, will need to be provided prior to issuance of the bond but is not always needed up front to apply and get a quote.
How to Get Started with your Freight Broker Bond request:
Contact LFS to go over your freight broker bond request. We will be able to tell you exactly what may be required to get a good quote for your specific freight broker bond request.
Complete an application and send any required documentation. A financial statement is not always needed but may be required along with the application. A bond company will let you know if a financial statement will benefit the quote.
Once the application is received, an agent will work to get the best quote for the request. Typically the quote will be obtained same day to 24 hours.
Once the quotes are received, the most favorable quote will be relayed.
The last step is to simply pay the premium, provide the MC number, if not already supplied, and your FMCSA Freight Broker Surety Bond will be put in place.
Contact Logistical Forwarding Solutions today for consulting on the best options of getting your freight broker bond.