What Is A BMC 84 Freight Broker Bond? (ICC Bonds)
A BMC-84 is like a surety bond, and if you’re a shipper/motor carrier then you need one! It is mandated by the Federal Motor Carrier Association, or the FMCSA if you want to get brokerage authority and importantly, it protects your business too.
But how do they work, how much do they cost, and what is the difference between a BMC-84 and a BMC-85? This article answers all these questions and more!
How Do Freight Broker Bonds Work?
A BMC-84 bond makes sure that as a broker you are following the regulations of the FMCSA. If you don’t do this, they can make a claim against the bond which you will then have to pay.
If you’re a freight broker who fails to pay the fees of motor carriers on time you will have a claim made against your bond. Not only can this be an expensive endeavor if you’re a freight broker, but your brokerage could be threatened too.
How Much Do Freight Broker Bonds Cost?
A freight broker bond can cost $750 to $900. The price is worked out as a minor portion of the $75,000 bond amount. It can be as little as 1% to as much as 12%, and how much you’ll pay is determined by your financial situation, such as your own personal credit.
How Do You Obtain Freight Broker Bonds?
Now we know more about freight breaker bonds and how crucial they are to brokerage businesses, let’s take a look at how you get a freight broker bond.
When establishing a freight brokerage, this will need to be registered with the FMCSA so you can get your freight broker authority.
Once you’re registered you will then need to obtain a freight broker bond from a bond company and file it with the FMCSA.
BMC-84 Vs BMC-85
To obtain freight broker authority, you will either need to get a freight broker bond (BMC-84), or a trust fund (BMC-85). Both have their pros and cons depending on what you need for your brokerage.
A BMC-84 is better for those who are starting out with their freight brokerage and don’t have a lot of working capital available. Meanwhile, BMC-85s are better for larger brokers due to the hefty up-front cost.
With a BMC-85 you will be required to pay $75,000 into a trust where you will not be able to access the funds, and will be charged a bank fee for.
Trust companies don’t have as much liability when paying claims as it comes out of your trust, and as a result, they may not be compelled to investigate any claims.
Are BMC-85 Trusts Safe?
As we discussed above, you have two options when it comes to insuring your brokerage. You can obtain a freight broker bond or a trust fund to insure a license for your brokerage. But it’s important that you’re aware that not every trust fund meets the standards of the FMCSA. Putting your money in the wrong trust fund may lead to you losing your money and can have a negative impact on your brokerage. But how do you know if the BMC-85 trust fund you want to use is legitimate?
When choosing a trust so you can meet your license requirements, you must ensure that you’re getting your money’s worth. The FMCSA warns against group trust funds and will not accept them. So if you are buying a BMC-85 trust fund and are not handing over $75,000 you will need to instead give an Irrevocable Letter of Credit (ILOC) to the trustee, or your trustee can post this for you. Let’s take a look at how you do this.
- Get a copy of the ILOC
- Read over the ILOC, making sure your company is listed specifically.
- Get in touch with the bank supporting the ILOC to confirm their legitimacy.
If your trustee does not give you a copy of the ILOC even after you’ve requested it, take this as a warning that they are not to be trusted.
If you go for a freight broker bond, there will be additional steps to take to make sure the surety bond has sufficient funding. Third parties and the Department of Insurance take care of this for you. Bonding companies are designated a financial size and financial stability grade. The government gives these ratings to verify these companies.
What Do You Need For Freight Broker Insurance?
As well as obtaining a freight broker bond, you will have to meet some requirements to be registered a freight broker. Let’s look at some insurance requirements that the FMCSA needs.
Public Liability Insurance
As well as the surety bond for freight brokers, you will have to obtain public liability insurance so you’re insured against physical injury, environmental damage, and damage to property.
BOC-3 Filing
You will also have to file a BOC-3 form with the FMCSA. The BOC-3 is needed to designate process agents, and so you can run a legitimate brokerage business.
Unified Carrier Registration
The UCR system registers fees and collects them from vehicle operators who travel across state lines. If you’re a freight broker, what you will need is pretty simple and cheap at just $76.
If you are a motor carrier as well, however, your registration cost will vary depending on how big your fleet is. But either way, you will need to register annually with the UCR and also pay an annual fee.
What Is The Right Freight Broker Bond Amount?
Freight brokers need to raise a freight broker bond of $75,000. But freight brokers who are highly qualified can also have an extra $25,000 in bond coverage, and will receive additional protection for their motor carriers and shippers.
Final Thoughts
We hope that our article told you all you need to know about BMC-84s and how to obtain them safely so your funds – and your business – is protected!