Obtaining a Freight Broker License in Illinois
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Who Needs a Freight Broker License?
All freight brokers are licensed (more accurately, registered) at the federal level, which issues them what is known as an “operating authority.” The Federal Motor Carrier Safety Administration (FMCSA) issues all freight broker operating authorities, which are represented by an MCN, or motor carrier number.
What Are the Steps in the Licensing Process?
Although many think of freight brokers as being licensed, they actually go through a registration process, but that’s mainly a matter of terminology. The registration is accomplished online, through the Unified Registration System (URS), but there are several things that must be accomplished first, namely:
- Establishing a legal business entity for those who plan to operate their own freight brokerage.
- Registering the business with the Internal Revenue Service and the Illinois Department of Revenue.
- Deciding whether to apply for an operating authority as a “Broker of Household Goods” or a “Broker of Property (except Household Goods),” or as both.
- Designating a process agent in every state where the freight broker will have an office or write contracts or choosing an FMCSA-approved blanket process agent company that can represent the broker in any state. The broker or a blanket process agent must list all designated process agents on a single Form BOC-3 (Designation of Process Agents), which must be filed with FMCSA.
- Purchasing a $75,000 BMC-84 freight broker bond or providing FMCSA with a BMC-85 Trust Fund Agreement. (The bond is the more popular option, as it does not require tying up $75,000 in cash or credit.)
After completing these steps, you are ready to submit your online application through the Unified Registration System (URS). Once you pay the registration fee, which is currently $300, you will receive your MCN immediately. It will be about 10 business days before your operating authority documents arrive in the mail.
Why Is a Freight Broker Surety Bond Required?
In purchasing a BMC-84 bond, a freight broker enters into a legally binding contract with FMCSA (the “obligee” requiring the bond) and a guarantor (known as the “surety”). The freight broker (the bond’s “principal”) agrees to abide by all FMCSA regulations and to compensate any party that experiences a financial loss resulting from the broker’s noncompliance. For example, a carrier that does not receive a payment owed by the principal can file a claim and be compensated if the surety determines that the claim is legitimate.
How Are Freight Broker Bond Claims Paid?
While the principal is legally obligated to pay all valid claims, as the bond’s guarantor, the surety typically will pay a claim initially and then be reimbursed by the principal. The surety may take legal action against a principal who fails to repay the debt resulting from the surety’s initial payment of a claim.
What Do They Cost?
Freight broker bonds are subject to underwriting to determine the risk to the surety and set an appropriate premium rate for the principal. The main concern is the risk of the surety not being repaid by the principal for claims paid on the principal’s behalf.
The primary measure of that risk is the principal’s personal credit score. A high credit score is correlated with a low risk to the surety and is deserving of a low premium rate, typically between one and four percent. On the other hand, a low credit score suggests a higher risk level, which will result in a higher premium rate.
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