What is a Transient Merchant Bond?
Transient merchant bonds, also referred to as “transient vendor bonds” and “peddler bonds”, are a subset of the broader license and permit bond category that must be filed with the government agency (city, county, or state) responsible for regulating transient sales activity in the merchant’s jurisdiction as a condition of licensure for most transient merchants. Some states handle transient merchant licensing and permit issuance directly, while others allow local municipalities to regulate, license, and issue permits to merchants. Transient merchants are classified as any individual or company temporarily engaging in retail sale of goods or merchandise and occupies any lot, building, room, or structure of any kind.
Transient merchant bonds must be issued by insurance carriers admitted in the state where the government agency requiring the bond resides. The insurance carrier issuing any surety bond, such as a transient merchant license bond, will also be referred to as the “surety company” or the “bond company”.
Why is a Transient Merchant Bond required?
Merchants are required to purchase license and permit bonds by state and local statutes to protect a government agency by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from a transient merchant breaking merchant license law. The surety company provides the government a guarantee (the surety bond) that the customers, vendors, and suppliers of a licensed transient merchant will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the merchant’s license up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, merchants are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face indefinite license suspension. Transient merchant bonds refer to the merchant or vendor as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Transient merchant license and permit bond violations triggering a bond payout may include a merchant attempting to sell goods in a way that creates a public hazard, committing acts of harassment or intimidating the public, and operating without the required license or permit.
How much does a Transient Merchant Bond cost?
Transient merchant bonds typically cost between .5% - 1% with a minimum premium of $100.00
Example: $10,000 Transient Merchant Bond Cost
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Is a Credit Check Required for Transient Merchant Bonds?
Credit checks are not required for transient merchant license bonds.
How does the wording in the bond form impact the cost of a Transient Merchant Bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and transient merchant (principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the merchant via higher bond premiums, stricter underwriting or collateral. The primary text to consider in transient merchant license and permit bonds surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 transient merchant bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Transient bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the merchant and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the merchant failing to pay premiums due or claim payouts. Transient merchant bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Transient merchant bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.