why bond when you can trust?

[don jipping]

I am curious as to why a freight broker would obtain a $10,000 bmc-84(bond), when they can obtain a bmc-85(brokers trust fund) .
I know that having a bmc-85 can tie up precious working capital, but these t
rust funds can be filed without having to cough up entire amount all at once.
Since the process of obtaining a bond is described as being such a quagmire of forms, financials and hoop jumping, only to end up with a product that gives you the satisfaction of knowing your bond can be cancelled at anytime jeopordizing your compliance with the FMCSA, why do it?
A bmc-85 can provide you with the coverage needed, transportation specialist to handle any claims made against you, flexible payment schedules, a monetary return on your money, an asset for your company, trust in knowing you are the one in control of your compliance with the FMCSA
I would like to hear from current brokers who have either one of these instruments.
thanks
donj

[Surety Guy]

Don, $10,000 working capital is a large amount for any business. I think it is great that the trust fund doesn't require all of the funds up front, but what is required for the first year of operation? I think you are a little confused about surety bonds...

-Bonds require an annual premium for payment, not payment of the bond amount.
-Principals are having trouble obtaining bonds these days to the amount of claims. Most sureties no longer write them due to the risk involved. Bonding companies that are still willing to write them are very particular as to who they will write and with good reason with the amount of claims.
-The forms required are minimal: a one page application, a copy of your personal and business financials. Many brokers get frustrated as many agencies can not write the bond, as they are not appointed with the proper markets.
-You are correct in saying the surety has the right to cancel the bond at anytime. However, this is a rare event. All we do is surety bonding and out of the thousands of bonds we write annually, there is maybe one or two that a surety will get off of mid-term. There is always a legitimate reason as well, if there weren't, no one would obtain bonds any more and the industry would collapse.
-In the event of a claim, the surety knows they made a $10,000 guarantee on the performance of your business. I think they have more of an interest in trying to weed out the nonsense claims since they have so much at stake. The trust fund only has the principals money at stake, do you really think they will work that hard for the principal compared to the surety?
-With the high number of claims for this particular class of business, would you feel more comfortable with a large bonding company guaranteeing your company or using $10,000 of your working capital to guarantee yourself?


I always recommend the BMC-85 trust fund to my clients with bad credit or if they are starting a new company, as they will not be able to obtain the bond. However, I tell them to obtain the bond when their credit improves or when they have at least one year of business financials.

I too would like to hear from brokers that have the bond and the trust fund. You and I can talk all day about what we think is best, however I think we can both agree real world experience is the best place to obtain knowledge on all of this.

Surety Guy,

I feel as though you are incorrect in the difference between bonds and trust funds. You state that a question about whether or not people would feel more comfortable with a large bonding company rather then putting up their own working capital. I feel as though people would feel comfortable knowing that the company they go with is going to do the right thing when it comes to claims. Having put up your own working capital would make that company more enclined to pay for the freight hauled then not. If you go with a large bonding company sure you are guaranteed the $10,000.00 surety bond but what happens when you have to pay out the whole $10,000.00 for claims filed, they then have to come up with the whole amount to pay it back to you. With a Trust Fund at least with making monthly payments they have money in the Trust fund and if we need to pay out the whole amount they only need to come up with what is outstanding. We are also choosey about who we give Trust Funds to in any business you have to know who your customers are. We don't make them jump through hoops and give up every thing personal and business about themselves. You are asking for financials from the business and personal. When trying to get bonded you ask for every thing short of their first born. The fact that with a Trust Fund when the companies are making monthly payments at least we know that they are still around and doing business. With a Trust Fund you are not just a file number you are a business and we know who you are we treat our customers on a personal level. The ability to insure yourself in any way makes you a better business owner all together because you learn the you don't want to have to spend that money because it is yours. Therefore the claim level is lower. The question that I would like to ask is why would you tell someone with good or bad credit to go and get a BMC-85 for the first year or so and then get a surety bond? If I was someone that you told that to I would never come back to talk to you again because in one year I would be fully funded at $10,000.00 and would be doing business and have nothing to worry about. Then to have to come to you and give you all my personal and business financials would not be worth my time. So the answer is trust the only way to go. New or Old companies are making the right decision to control their own company buy putting themselves in charge of their money and the way that it is handled.

[Surety Guy]

Originally Posted by guest

I feel as though you are incorrect in the difference between bonds and trust funds. You state that a question about whether or not people would feel more comfortable with a large bonding company rather then putting up their own working capital. I feel as though people would feel comfortable knowing that the company they go with is going to do the right thing when it comes to claims. Having put up your own working capital would make that company more enclined to pay for the freight hauled then not.

True, if I were a client of the freight hauler I would prefer for their own capital to be at stake in the event of a claim. However, I was stating what is best if you are the freight hauler, not their clients.

Originally Posted by guest

If you go with a large bonding company sure you are guaranteed the $10,000.00 surety bond but what happens when you have to pay out the whole $10,000.00 for claims filed, they then have to come up with the whole amount to pay it back to you.

I think you are confused as to how a bond works...Similar to auto insurance, you pay a premium for the sureties guarantee, you do not pay the amount of the bond. Do you pay $1,000,000 annually for your million dollar coverage on your car insurance? No, nor do you pay the surety $10,000 for the bond.

Originally Posted by guest

With a Trust Fund at least with making monthly payments they have money in the Trust fund and if we need to pay out the whole amount they only need to come up with what is outstanding.

self insuring a business is a risky plan no matter how you look at it. The broker is in effect saying I will perform per the terms of our contract and it is guaranteed by $10,000 of their working capital. In the event of a claim, the $10,000 can be wiped out with no legal council backing them up in the event of an invalid claim.

Originally Posted by guest

We are also choosey about who we give Trust Funds to in any business you have to know who your customers are. We don't make them jump through hoops and give up every thing personal and business about themselves. You are asking for financials from the business and personal.

I have yet to hear of a surety sharing anyone's financials with any third parties. I don't think asking for business financials and a personal statement is that much when they are making a $10,000 guarantee on the performance of a business they don't know. Obviously, there would be little required of the applicant for a trust fund, there is no risk for the bank. This is why I recommend the trust fund to my clients that can't obtain the bond.

Originally Posted by guest

When trying to get bonded you ask for every thing short of their first born.

I don't think a one page application and personal and business financials is everything, but their first born.

Originally Posted by guest

The fact that with a Trust Fund when the companies are making monthly payments at least we know that they are still around and doing business.

how is this an advantage for a broker choosing between the two options? I thought that's what we were discussing.

Originally Posted by guest

With a Trust Fund you are not just a file number you are a business and we know who you are we treat our customers on a personal level.

Your not just a file number, you are a file number that is an interest earning account for their company

Originally Posted by guest

The ability to insure yourself in any way makes you a better business owner all together because you learn the you don't want to have to spend that money because it is yours. Therefore the claim level is lower.

I agree that it will make them a better freight broker since the risk is on their hands, but that doesn't necessarily make it smarter business decision, as they could be out $10,000!

Originally Posted by guest

The question that I would like to ask is why would you tell someone with good or bad credit to go and get a BMC-85 for the first year or so and then get a surety bond?

Because there are no sureties willing to write this high claim bond for a new business. Would you make a $10,000 guarantee on the performance of a stranger that is starting a new company if all you knew about them is that they pay their bills late? This is not our decision since we are the agency, not the surety. However, I agree with their underwriting and would practice using the sme guidelines.

Originally Posted by guest

If I was someone that you told that to I would never come back to talk to you again because in one year I would be fully funded at $10,000.00 and would be doing business and have nothing to worry about.

Well you might want to worry about a claim in which case you can say goodbye to your $10,000. Without a surety, you have no one on your side to fight invalid claims.

Originally Posted by guest

New or Old companies are making the right decision to control their own company buy putting themselves in charge of their money and the way that it is handled.

(you meant "by" not "buy")

I don't understand how having $10,000 frozen in account for the duration of your business being active puts you in control...Fortunatly, with the bond you don't need to come up with $10,000.


I am not saying the trust fund is a bad option, but it is certainly not the better of the two if you can obtain the bond. The only reason I ever recommend the trust fund is if you can't obtain the bond, which many can not. However, for the businesses that can get the bond, it is rediculous to self insure your company using the trust fund.

Apply: ICC Surety Bond Application

Surety Guy,


You state that you don't have anyone to fight for an invalid claim when you don't have a surety. That is completely incorrect their is someone to fight for an invalid claim or any claim when you have a Trust Fund. What do you think that you pay in $10,000.00 and when ever a claim comes in the trust company just pay it out before investagating the claim? That is incorrect Trust companies have claims departments or send it out to Transportation Specailist to make sure that all the claims are valid and the fact that they don't pay anything with out the okay of their client. I am sure to extent that self insuring your own company may be risky but not in the reasons that you explain. The fact that they perform to what the contact states is incorrect also. Whether you self insure or you bond the ability to pay your bills is the same. Fine you may go in depth in the fact that you are insuring these people for full $10,000.00 and you need to make sure that they can pay their bills I understand that but the oldest of companies could at one point have the best business financials and the best personal financials and in the next month or two they could go completely under and where does that leave you and your surety bond. You say it is like car insurance an it only takes one bad accident to wipe it all out. I understand how a bond works I am not confused I just guess that what ever decision you make whether it is to Bond or Trust you need to make sure that you Trust the company that you go with to ensure the fact that they have your best interest at heart. Whether it be with claims or information that you may need to further your business. That being that I have investigated some of the Trust Companies and Surety Companies out there and some are good and some are bad as in any industry but as a owner of a company you need to do what is best for your company. So the thing that I want to stress is make sure that you check every avenue before making a decision.

[Surety Guy]

Originally Posted by guest

You state that you don't have anyone to fight for an invalid claim when you don't have a surety.

Please re-read what I wrote. I did not state that no one will investigate a claim if you go with the BMC-85. I said, I would feel more comfortable having a surety investigate the claim, as they are a larger corporation that made a $10,000 guarantee on the performance of your business. A trust fund company may do a good job at sorting out invalid claims, however they don't have much to lose; I would rather have a large corporation that has more at stake.

Originally Posted by guest

I am sure to extent that self insuring your own company may be risky but not in the reasons that you explain.

Then please elaborate further...

Originally Posted by guest

Fine you may go in depth in the fact that you are insuring these people for full $10,000.00 and you need to make sure that they can pay their bills I understand that but the oldest of companies could at one point have the best business financials and the best personal financials and in the next month or two they could go completely under and where does that leave you and your surety bond.

Actually, they are being bonded, not insured. Please read the difference between the two at the following link: http://www.jwsuretybonds.com/faq_diffbondins.htm

If a company goes out of business that I am writing a bond for then I suppose I would not be writing the renewal. I think you may be confused as to how the surety industry works. I work for a surety bond agency, we are not the bonding company.

Originally Posted by guest

You say it is like car insurance an it only takes one bad accident to wipe it all out.

Once again, please re-read my statement. I was simply comparing the fact that both insurance and bonds have a premium that is paid, as you were mistaken when you stated that a principal has to pay for the full amount of the bond.

Your best bet is to read our Bonding Information Section to learn more about surety in general (perhaps you should read more about how your car insurance works as well). In the event of a claim there is nothing to "wipe out". Unlike the trust fund there are no funds being accumulated over time in case there is a claim.

Originally Posted by guest

So the thing that I want to stress is make sure that you check every avenue before making a decision.

I can't disagree there!