Tennessee Car Dealer License Guide

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In this article, we’ll walk you through everything you need to get a Tennessee car dealer license.

Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. Our expert agents are ready to assist with all your Tennessee car dealer license bond needs.

What Are the Different Types of Tennessee Car Dealer Licenses?

In Tennessee, dealer licenses are issued by the Tennessee Motor Vehicle Commission, which is part of the Tennessee Department of Commerce and Insurance. The two major categories of dealer licenses are “franchised motor vehicle dealers,” which sell both new and used vehicles, and “used motor vehicle dealers,” which ell used vehicles only.  Each of these categories is further divided according to the specific type of vehicles sold (e.g., cars and trucks, motorcycles, recreational vehicles, etc.).  This article focuses on the licensing of used motor vehicle dealers.

What Are the Steps in the Licensing Process?

You can apply online for your initial dealer license through Tennessee’s Comprehensive Online Regulatory and Enforcement System (CORE). Prior to applying, you’ll need to accomplish all of the following:

  • Register your business entity the Division of Business Services.
  • Obtain a Sales and Use Tax Certificate from the Department of Revenue.
  • Obtain a business tax license, if applicable, from the County Clerk.
  • Have a CPA prepare a financial statement documenting a net worth of at least $10,000.
  • Establish a permanent business location and get written zoning approval.
  • Purchase a $300,000 garage liability insurance policy.
  • Purchase a $50,000 Tennessee car dealer bond.

Complete the application on CORE and submit it, along with the required supporting documentation and payment of the license fee (currently $400).

Why is a Tennessee Car Dealer Bond Required?

A Tennessee car dealer bond protects the state and the public against the financial consequences of a dealer’s unlawful or unethical business practices. The bond serves as a dealer’s pledge to operate within the confines of all applicable laws and regulations and obligates the dealer to compensate any party legitimately injured by the dealer’s violation of the surety bond agreement.

How Are Tennessee Car Dealer Bond Claims Paid?

First, understand that a Tennessee car dealer bond is a legally binding contract among three parties:

  • The “obligee” requiring the bond (the state of Tennessee),
  • The “principal” purchasing the bond and legally obligated to pay valid claims (the dealer),
  • And the “surety” guaranteeing the principal’s payment of valid claims.

The obligation to pay claims belongs to the principal, but the surety guarantees payment and typically pays any valid claim on the principal’s behalf to expedite the process. The principal’s legal obligation then shifts to repaying the surety for the debt created by that initial payment. Be aware that failure to reimburse the surety can result in the surety taking legal action against the principal.

How Much Does a Tennessee Car Dealer Bond Cost?

Two factors are multiplied to arrive at the annual premium for a Tennessee car dealer bond: the $50,000 required bond amount (also known as the bond’s “penal sum”) and the premium rate assigned by the suety on a case-by-case basis. That premium rate is based largely on the principal’s personal credit score, which is the best indicator of the risk the surety will be assuming in paying claims on behalf of the principal.

A high credit score means the risk of not being repaid by the principal is probably low, earning the principal a low premium rate—usually in the standard market rate range of 1% to 2%. That would make the annual premium somewhere between $500 and $1,000. A lower credit score means the risk to the surety is higher, resulting in a premium rate which could be around 3%.

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