Virtually all states require a bond but vary as to the amount of the bond. For example, some states require a $25,000 bond while others require a $10,000 bond.

Most people think, "Ten thousand dollars? I don’t have that kind of money! What am I gonna do?"

Simply flip open the yellow page book, look for bond and insurance companies and start calling!

Tell them you need a used motor vehicle bond for the amount your state requires and you will receive a quote right over the phone.

You will probably have to apply for the bond in person unless it is a national company.  The application is one or two pages. If you are approved, your bond should be ready in a day or two.

Typically, payment for the whole year is required up front and the bond must be renewed every year. Some bond companies will give you a discount if you renew the bond with them

I recently renewed my bond for $175.  That's less than $15 a month! Premiums do vary, but as for as I'm concerned, a bond is a bond. Therefore, you might as well go for the cheapest premium.

(After you get your dealer license you will get several offers in the mail for cheaper premiums, since bond companies purchase mailing lists of licensed dealers.)

I was $30,000 in credit-card debt when I applied for my bond and I was approved. If you have terrible credit, it certainly will not hurt to try. Do not be afraid. It will not cost you anything other than a wounded ego if you are rejected.

If you cannot get a bond with the first company, keep calling until you find a company that will approve you! All companies have different standards.

Remember: If you do not have judgments hanging around and have not recently declared bankruptcy, you should be O.K.

Before you start shopping around for a bond, you must have a business name.

Remember: Using a non-fictitious name as opposed to a fictitious name has several advantages (see section on "Naming Your Business").

You might even be able to use your bond as proof of financial responsibility if you get pulled over while driving around your inventory if the bond amount meets or exceeds your state’s required amount for financial responsibility.

In other words, if your state says you must have at least $15,000 liability insurance and you have a $25,000 bond, you technically can get by without insurance. Simply hand a police officer a copy of your bond if you get pulled over!

Of course, doing this has its disadvantages. A bond does NOT operate exactly like insurance. If you get in an accident and get sued for your bond, you will have to pay it back.

On the other hand, if you get in an accident and have insurance, you will NOT have to pay for anything other than the deductible.

A bond is required in order to discourage dealers from screwing people over and to give the public a sense of security when purchasing cars. As a dealer, you are in a position to really screw people over if you wanted to.

A bond is also required in other situations you might not think about. For example, if you bid on a car at a dealer auction and refuse to pay for the car, the dealer auction can sue for your bond amount.

Most bonds are lost when the dealer commits fraud or misrepresentation. The dealer might not only get sued personally, but may also get sued for his bond amount.

For example, if a defrauded buyer wins a settlement against a dealer for $30,000 and the dealer is broke; the lawyer will attack his bond instead.

On the other hand, if the dealer has $30,000 in business assets, the lawyer will sue for his personal assets and the dealer will NOT lose the bond.

Fraud and misrepresentation overlap, but are generally committed when the dealer conceals something about the car that is so major that the buyer would not have bought the car if he had known about it.

Examples range from hiding the fact that the car was in an accident to rolling back the odometer.

I do not encourage fraud and misrepresentation, but if you are crooked enough to do it, chances are you will NOT automatically lose your bond since most lawsuits are settled out of court.

For example, if you are rotten enough to put block sealer in an engine and sell the car to an unsuspecting buyer, you have several options if the engine seizes the next day and you are sued:

You can offer to buy back the vehicle, you can pay for the repairs or you can play hardball and say, "sue me!"

In fact, some crooked dealers wait until just before the court date to say, "O.K., I'll buy back the car".

Be an honest dealer and if you get sued, an "AS-IS" sale will protect your assets and your bond.

DISCLAIMER:  The preceeding information does NOT constitute legal advice. For legal advice, please seek a competent attorney.