Obtaining a Freight Broker License in Texas
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Who Needs a Freight Broker License?
Anyone who wants to take a job as a freight broker or open their own freight brokerage must obtain a federal freight broker license, which is known as an “operating authority.”
What Are the Steps in the Licensing Process?
The process for obtaining a freight broker operating authority actually involves registration, not licensing, but that’s primarily a technical distinction. The registration is accomplished online, but there are several things you’ll need to do first, including:
- If you plan to operate your own brokerage, establish a legal business entity. You can find guidance on appropriate legal structures and register your business on the Texas Secretary of State’s Office website.
- Register your business for taxation purposes with the Internal Revenue Service and the Texas Comptroller of Public Accounts.
- Decide whether you need an operating authority as a “Broker of Household Goods” or a “Broker of Property (except Household Goods),” or both.
- Choose a process agent in every state where you will have an office or write contracts or designate a blanket process agent company that can represent you in any state where you operate. All process agents must be listed on a single Form BOC-3 (Designation of Process Agents), to be filed with FMCSA. A blanket company can do this for you or you can do it yourself.
- Purchase a freight broker bond (Form BMC-84) in the amount of $75,000. Alternatively, you can provide FMCSA with a Trust Fund Agreement (Form BMC-85), but that requires tying up $75,000 in cash or credit, which most applicants prefer not to do.
After completing these steps, apply for registration online through the Unified Registration System (URS) and pay the registration fee (currently $300). Your MC number (MCN) will be generated immediately, and your operating authority documents should arrive by U.S. mail in about 10 business days.
Why Is a Freight Broker Surety Bond Required?
When you purchase a freight broker bond (BMC-84), you are pledging to abide by all federal regulations governing the freight brokerage industry. Any failure to do so can result in a claim for damages being filed by an injured party—most often, a carrier who has not been paid by the freight broker as agreed upon. In this manner, freight broker bonds provide financial protection for FMCSA (the bond’s “obligee”) and for the shippers and carriers using a freight broker’s services.
How Are Freight Broker Bond Claims Paid?
The terms of a freight broker bond legally obligate the freight broker (known as the bond’s “principal”) to pay all valid claims up to the $75,000 bond amount established by FMCSA in its role as obligee. However, the bond’s guarantor (the “surety”) typically makes direct payment to the claimant and is subsequently reimbursed by the principal.
What Do They Cost?
All BMC-84 bonds go through an underwriting process that determines the premium rate the principal will pay. The main concern is the risk the surety will take on in agreeing to pay claims on the principal’s behalf. There is always the chance that the principal won’t repay the surety as required by the terms of the surety bond agreement.
A good credit score is a sign of low risk to the surety and typically results in a low premium rate, usually in the range of 1-4%. A low credit score is indicative of greater risk and warrants a higher premium rate.
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