Freight Broker Bonds (BMC-84 Bonds)
Learn more about BMC-84 bonds below, and contact Surety Bond Professionals today to request a quote. Our experienced surety agents are ready to help you get the bonds you need.
What Are They?
The Federal Motor Carrier Safety Administration (FMCSA), which is an agency of the U.S. Department of Transportation, requires freight brokers and forwarders to put up $75,000 in funds to provide financial protection for shippers and carriers. This provides funds to pay shippers’ or carriers’ claims who are owed money from a freight broker or freight forwarder.
This requirement can be met by either:
- Purchasing a $75,000 surety bond, known as a BMC-84 bond
- Putting up cash or line of credit (LOC)—or some combination of cash and LOC
Because purchasing a BMC-84 bond is part of the process of obtaining an operating license, it’s categorized as a license and permit bond.
Who Needs Them?
Any freight broker or forwarder seeking a license to operate within the United States must purchase a BMC-84 bond or put up $75,000 in cash and/or an LOC. Many brokers and forwarders choose to purchase a bond rather than tie up their cash or credit and pay a large annual administrative fee to the bank or trust company. To maintain a valid license, the bond must be renewed annually.
How Do They Work?
As with all surety bond agreements, a BMC-84 bond agreement brings together three parties in a legally binding contract:
- The FMCSA, as the agency requiring the bond, is the obligee.
- The freight broker or freight forwarder purchasing the bond is the principal.
- The company underwriting and issuing the bond is the surety.
The bond serves as the principal’s guarantee to conduct business in a lawful and ethical manner, which includes paying its debts to the shippers and carriers that move freight for them. The specific laws and industry standards the principal must abide by are spelled out in the terms of the bond agreement. Any violation of those terms that results in a financial loss by a shipper or carrier can trigger a claim against the bond.
When a claim is filed, the surety will conduct a thorough investigation to ensure that the claim is valid. The surety bond agreement makes the principal solely responsible for paying claims. However, if the principal doesn’t settle or pay a claim in a timely manner, the surety will do so on the principal’s behalf. When this happens, the surety is essentially making an advance to the principal and is entitled to full reimbursement of the amount paid to the claimant.
What Do They Cost?
Every year, the principal will pay an annual premium that is only a small percentage of the required $75,000 bond amount (also known as the penal amount). The surety’s primary consideration in setting the premium rate for a given applicant is the individual’s personal credit score. In general, the better the principal’s credit score, the lower the premium rate that will be assigned. However, for these type of bonds, # of years in business and a basic balance sheet often play important roles in the underwriting of the bond as well.
If your credit is very good and the other factors line up, you could pay an annual premium that is as low as 1% of the $75,000 required bond amount, or $750. However, if the business is new and/or credit isn’t quite as strong, the bond premium could be 2 – 3%.
Get Bonded Today
Purchasing a BMC-84 bond rather than going the cash or LOC route can often be the more affordable and convenient choice. To get bonded, apply online with Surety Bond Professionals, or call us to discuss your bonding needs.
