Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. In this post, we’ll discuss the key differences between BMC-84 and BMC-85 bonds, so you can determine which is right for your needs.
With access to a broad range of surety markets, our expert agents are ready to assist with all of your freight broker or freight forwarder bond needs.
What Are They?
Throughout the country, freight brokers and freight forwarders must meet the requirements of the Federal Motor Carrier Safety Administration (FMCSA) for $75,000 to cover possible claims filed against them by the shippers or carriers they work with. Providing that $75,000 source of funds is a mandatory step in becoming licensed to operate as a freight broker or freight forwarder in the United States.
The terms “BMC-84” and “BMC-85” are shorthand for the two options available for meeting the $75,000 funding requirement. They are actually the names of the forms that must be submitted to the FMCSA to exercise these options.
- BMC-84 refers to a surety bond with a $75,000 coverage amount (or “penal sum”).
- BMC-85 refers to a $75,000 trust fund that can be established with cash, an irrevocable line of credit or letter of credit, or a combination of these methods.
Who Needs Them?
If you plan to obtain or keep a license as a freight broker or freight forwarder, you have no choice but to comply with the $75,000 funding requirement. The only real question is which option works better for you: BMC-84 surety bond or BMC-85 trust. That decision usually rests on whether or not a freight broker or forwarder can afford to tie up that much cash and/or credit. Smaller operations typically choose to purchase a BMC-84 surety bond.
How Do BMC-84 Bonds Work?
A federally-mandated BMC-84 bond is a type of license and permit bond. Like all such bonds, a BMC-84 bond is a legally binding contract among an “obligee,” a “principal,” and a “surety.” In this case, the obligee requiring the bond is FMCSA, an agency of the Department of Transportation. The principal is the freight broker or freight forwarder purchasing the bond. And the surety is the company guaranteeing the payment of valid claims against the bond.
Under the terms of the surety bond agreement, the principal is legally obligated to operate in complete compliance with all relevant federal laws; failure to do so can result in claims against the principal’s BMC-84 bond. The most common reason for claims is failure to pay fees owed to truckers and other carriers.
When a claim is filed, the surety will first investigate to make sure it’s legitimate and may try to negotiate a more favorable settlement for the principal. But if the claim must be paid, typically the surety will pay it initially and wait for the principal to repay the resulting debt. Whether it’s up front or after an initial payment by the surety, the obligation to pay claims belongs entirely to the principal.
The way in which claims are paid is one of the ways in which BMC-84 bonds and BMC-85 trusts differ. With a BMC-85 trust, the trust company holding the principal’s $75,000 will draw money from the trust to pay valid claims directly.
What Do They Cost?
Another way in which BMC-84 bonds and BMC-85 trusts differ is in what the principal must pay for them. Because there is no repayment of a debt and no risk of non-repayment for claims, a BMC-85 trust involves only an annual administrative fee charged by the trust company or bank holding the principal’s $75,000. That fee usually does not exceed $1,500 per year.
BMC-84 bonds, however, do carry the risk that the principal may not readily repay the surety for claims paid on the principal’s behalf. Therefore, they are subject to underwriting that’s based largely on the principal’s personal credit history. A high credit score suggests a low risk level for the surety and results in a premium rate as low as 1%. Lesser credit indicates a higher risk and requires a higher premium rate, perhaps as high as 12%.
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Our surety bond agents will get you a competitive rate for the BMC-84 bond you need to operate as a freight broker or forwarder.
