Surety Bond Professionals is a family-owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your freight broker bond needs. Learn how to get a freight broker license, below.
Who Needs a Freight Broker License?
A freight broker license is commonly referred to as an MC Authority, which is shorthand for a Motor Carrier Operating Authority. Anyone who wants to work as a freight broker must obtain one from the Federal Motor Carrier Safety Administration (FMCSA).
What Are the Steps in the Licensing Process?
Here is what you’ll need to do to get licensed as a freight broker:
- Establish your business as a sole proprietorship, partnership, LLC, corporation, or other legal entity.
- Complete the freight broker application (OP-1) form.
- Pay the application fee (currently $300).
- Purchase a $75,000 BMC-84 freight broker surety bond.
- Name a process agent in the state where your office is located. If you have offices in multiple states, you’ll need a process agent in each of those states.
- Complete the Unified Carrier Registration (UCR)
You’ll receive your MC number in the mail after your application has been approved by FMCSA. However, you must wait until your MC authority arrives before you start doing business.
Why is a Freight Broker Bond Required?
A BMC-84 freight broker bond guarantees that the freight broker (the bond’s “principal”) who purchases it will operate in compliance with all applicable federal laws. The bond indemnifies FMCSA against liability for damages caused by a properly licensed freight broker and provides a source of funds for compensating parties who experience such damages as a result of the principal’s unlawful or unethical actions.
How Are Freight Broker Bond Claims Paid?
The surety bond agreement for a freight broker bond is a legally binding contract between three parties: the principal, the “obligee” requiring the bond (FMCSA), and the bonding company that underwrites and authorizes the bond (the “surety”). The contract legally obligates the principal to pay all valid claims against the bond.
If the surety is unable to negotiate a mutually acceptable settlement and the principal doesn’t pay the claim promptly, the surety will pay it on behalf of the principal. In paying the claim, the surety is extending credit to the principal and creating a debt that the principal must then repay.
How Much Does a Freight Broker Bond Cost?
When purchasing a freight broker bond, the principal will pay an annual premium that is a small percentage of the required $75,000 bond amount. That amount, also known as the bond’s “penal sum,” is the maximum amount that will be paid out on a single claim.
The specific percentage, or premium rate, will be determined by the surety based on the underwriters’ assessment of the principal’s creditworthiness. This indicates the principal’s ability to repay the surety for claims paid on his or her behalf. The most important factor is the principal’s personal credit score.
A principal with great credit typically will pay the standard market rate of between 1% and 3%, or anywhere from $750 to $2,250. Credit-challenged principals may pay a higher premium as they are viewed as higher-risk credit applicants.
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