In order to obtain a license for selling vehicles in the state of California, it is first necessary to get a surety bond, which is sometimes called a car dealer bond, a motor vehicle dealer bond or a DMV bond.

The important thing to remember about this bond is that it does not provide any protection whatsoever to the person starting up the car dealership – instead, it provides a level of protection to the people who patronize the dealership. Without this surety bond, you cannot apply for a dealership license within the state. The amount of this bond will be $50,000 for auto dealerships, and $10,000 for motorcycle dealerships, although that is not the premium that the dealer would have to pay.

Getting Properly Bonded

So why exactly must you be bonded as a car dealer in California? It is required by the California Department of Motor Vehicles, and this requirement is not subject to any kind of negotiation. These bonds must be posted by dealerships prior to beginning operations within state borders, because the DMV is trying to protect unwary buyers against any kind of fraud, which might be perpetrated on them by dealers who are less than honest.

When this bond has been posted by a car dealer, the dealer who is in effect the principal party in the surety bond contract, guarantees to the obligee, which is the state of California DMV, that they will operate in full compliance with all statues listed in Section 11711, also known as the Vehicle Code. In the event that the principal fails to live up to all the regulations listed in the Vehicle Code, a claim may be made against the bond, and it would oblige the third party, the surety company that sold the bond to the principal, to pay all damages associated with the failure to comply.

Assuming the claim was found to be valid, the surety company would pay the amount of the claim made, and then pursue the principal to recover the full amount of the claim which it had paid out. The fact that the dealer is ultimately held liable for any claim made by a disgruntled customer or the California DMV, is enough to ensure that the dealer will generally comply with all statutes listed in the Vehicle Code.

Becoming a Car Dealer in California

Once you’ve purchased your bond, you can then follow up with all the steps necessary to open up a dealership in the state. The first step is to obtain the following forms, fill them out, and submit them:

  • OL902 – Property use verification for vehicle dealer’s license
  • OL21A – Original application for occupational license
  • OL12 – Application for original occupational license
  • OL53 – Authorization to release financial information
  • OL248A – New dealer application checklist
  • OL25 – Surety bond of dealer
  • OL124 – Certificate of proposed franchise

After you’ve submitted all these forms for approval, it will be necessary to pay several fees, which are associated with the applications process. The first of these fees is a $175 non-refundable application fee, then you’ll have to pay a $1 Family Support fee, a $100 auto broker fee, a $300 new motor vehicle board fee, $70 per dealer plate and $70 per branch location of your business.

Once you’ve received your bond and your auto dealer license, they will be set to expire at the same time, and that means that every year the surety bond must be purchased again, so that it remains in sync with your dealer’s license. You should be aware that the surety company will always reserve the right to terminate the bond, and can do so at its option, provided that it gives the principal notice of at least 30 days prior to suspension.

How to Get a Dealer License in CA

California has standards that are somewhat more stringent than many other states, specifically regarding eligibility for bonds and licenses in the auto dealership field. If you’ve had past bankruptcies or a poor credit history in general, you may have difficulty obtaining both a bond and a license, although some surety companies offer a bad credit surety bond program for such individuals.

Even with poor credit, you may qualify for such a program, but you can expect to pay a higher premium on your bond than others would be required to pay. Whereas a good credit business may only pay between 1% and 3% of the bond amount for a premium (between $500 and $1500), an individual with poor credit might have to pay anywhere from 5% to 15% as a premium.

Whether you have good credit history or bad, the surety company you should call first is NFP, which is the biggest and most affordable surety in the country. Call us and take your first step toward obtaining a new or used car dealer bond in California and becoming licensed to sell vehicles in the state.