The first step to obtaining a dealers license is to request an application from your state’s motor vehicle dealer licensing bureau. Click here to download your state's dealer license application. You can find out where to get your application by contacting your local motor vehicle licensing office. Your local office may have dealer application forms in stock, or they can give you the name and number of the state dealer license bureau, usually located in your state’s capitol. Some states will allow you to download this form, other states require you to order a 3 to 5 part carbon copy form and have it mailed to your home. Order or download your dealer application as soon as possible so you can begin the process of becoming a licensed motor vehicle dealer.
Many states require you to submit a Background Investigation. Your state wants to make sure they are not granting a dealer license any known felons. Your state is looking for prior records of armed criminal actions, assaults, drug convictions, sex crimes, etc. They also want to make sure you have never committed an automotive type crime, such as odometer tampering or an auto theft. If you have been convicted of a non-violent felony such as non-payment of child support or driving while under the influence, you still be able to obtain a dealer’s license. Each state has different background investigation criteria and some states don’t require any type of background check. Be sure to check with you state’s motor vehicle dealer licensing bureau.
Almost every state in the country requires you to register your dealership name with your state’s Secretary of State before obtaining a dealers license. This is usually called a fictitious name registration. This can usually be done over the phone or online and you will be charged anywhere from 7 to 100 dollars. To register online, just go to Google, type in your state name followed by Secretary of State. You should see information on registering your business name. Be sure to have a credit card handy since most states allow you to securely register your fictitious name on their official Secretary of State website. Be sure to check with your state dealer license bureau to make sure you have your dealership name registered correctly.
In order to obtain your dealer’s license, you will be required to own or
lease a place of business. Each state has very different
dealer license requirements you
must follow for your place of business. Some states will actually allow you
to operate your car dealership out of your home. These states will require you
to comply with local zoning ordinances, but if you live in a state that
allows you to operate with a dealers license out of your home, your overhead costs can be near
zero. More and more states are prohibiting a residence to be used as a
dealership. If your state does allow residential dealer licensing, you
should attempt to get your dealer’s license as soon as possible. If your
state law changes in the future, your business should be grandfathered in to
allow you to continue to use your residence as a
dealership. Just make sure to follow all state guidelines at all times to avoid losing your dealer’s license at your home. If you lose your dealers license, they may not allow you to re-apply at your home address due to newer and stricter licensing laws.
Most states, however, don’t allow a dealership to be located at the same address of a residence. Some states actually have a minimum number of square feet for the showroom, offices, restrooms, and vehicle maintenance areas. Many states also require you to either have an onsite service facility, or provide a written agreement with a service facility located in the same county than can repair or maintain your dealership’s inventory. Almost all states require you to have a working telephone that is listed with your area’s telephone directory. Cell phones and mobile phones do not usually meet the business telephone requirement. Your state will want to make sure you have a permanent business phone so your customers can contact you if necessary.
After you have located a place of business that meets all the requirements,
most states require either a law enforcement officer, or a representative
from your state dealer licensing bureau to inspect the business to make sure
it meets the minimum requirements. Your inspection should be very quick,
informative, and painless. Make sure you contact your state
bureau to make sure you can meet the minimum building requirements before
you make an appointment for a lot inspection. You should strive to meet all
lot requirements before the inspector arrives, so the inspector does not
have to visit your lot a second time.
Once your business location has passed the inspection, you have made it past the hard part and you can continue with the licensing process. Once again, your place of business requirement is very different from state to state. Some states require this inspection before sending in your application and some states require it as the last step in the licensing process so check with your state dealer license bureau to find out more about place of business guidelines.
Every dealer license bureau will require you to have a display lot. Your display lot will normally be required to be viewable from the nearest roadway. The minimum requirement for your lot may be as small as one space for the type of vehicle you are selling. Many states require that you have room for at least 10 vehicles and some states require you to have an inside showroom with a minimum square footage as well.
Most states will require licensed dealer’s sales activity to take place on
the licensed lot. While it would be very tempting to place a for sale sign
on your vehicle, then park it on a
very high traffic highway away from your dealership, but this is never allowed in any state. Selling your vehicles at non license locations is known as “Curbing”. Most states prohibit dealers from curbing vehicles at non licensed locations. If you attempt to curb your vehicles at another location you may quickly learn other dealers may be your worst enemy. If another dealer observes you curbing your vehicles at another location, they may be the first to inform your state dealer license bureau of your dealer license violation. Unless you are selling your vehicles wholesale at your local dealer auction, your sales activity will need to take place at your licensed location.
You will be required to have the minimum lot space required by your state before getting your dealer’s license.
About every state in the country will require you to mount a permanent sign on your business building or on your display lot before you obtain your dealers license. You will need to list your dealership name and possibly your hours of operation. Some states will actually require the words “Autos”, “Motors”, “Sales”, or “Cars” as part of the business sign. Most states require this information to be posted on a permanent business sign not on the window or door of your business building. You state may also require you to post your business hours somewhere on your building so you customers will know when to contact you. Your sign will usually need to be large enough to be read from the nearest roadway. Be sure to check with your state dealer license bureau so you can meet your minimum business sign requirements before you apply for your dealer license.
Many states will require that you have a working telephone that is registered in your business name before you are granted a dealers license. Your state dealer license bureau wants to make sure your customers can contact you if necessary regarding a vehicle they have purchased or to inquire about a vehicle they are interested in. Most states require your officially registered telephone to be a hard wired phone that is not a cell phone or a cordless phone that is based in another building. Your state dealer license bureau wants to make sure that your are a real business and not some fly by night company that purchases a pay as you go cell phone to meet your phone requirement.
When I had my dealership inspected for the first time to obtain my dealer license, the state trooper conducting my inspection asked where my phone was located. I pointed to it on my desk and the trooper picked up the phone to listen for a dial tone. I think he wanted to make sure I did not purchase an eight dollar phone from Wal-Mart and place it on the desk without phone service. Some law enforcement agents may circle your building to find a hard telephone wire entering the building if your state dealer license bureau has a phone requirement. Check with your state dealer license bureau to find out more about your phone requirement before you apply for a dealer license.
A handful of states require you to send a photograph of your business in your dealer license application packet. This photograph will most likely need to include your business building, your vehicle lot, and your vehicle sign. If your state requires this photo, it will probably need to be less than 8 by 10 inches so your state dealer license bureau can keep it in your dealership’s file. Check with your dealer license bureau to find out if you need to send a photograph.
All states require you to maintain dealer insurance on every vehicle in your dealership’s inventory. Most states will require you to provide proof of dealer insurance before issuing your dealer license although some states will grant you a dealer’s license if you sign a form promising to maintain dealer insurance at all times.
Regardless of your states dealer insurance requirements, you need to have dealer insurance on your vehicles before you take possession of your first vehicle. Dealer insurance can be very expensive and will be one of the highest monthly costs associated with the operation of your dealership. Some dealers have been known to purchase vehicles, drive them home, then purchase insurance for the vehicle. This action is illegal in every state. The punishment for driving vehicles without dealer insurance in most states is the loss of your driver’s license and immediate revocation of your dealer’s license. It is very, very important to maintain financial responsibility on your dealership. You should ask your insurance agent about a dealer insurance garage policy. Make sure the policy covers all persons test driving your vehicles, accidents that take place on your lot, and replacement costs of your vehicle inventory.
When a customer comes to your lot and asks for a test drive, ask the customer if you can see their current insurance ID card. Most people will gladly produce this ID card. By requiring your customer to provide proof of insurance, your dealer insurance company may be able to obtain a collection from the customer’s insurance company in the event the customer damages the vehicle during a test drive. Asking for the customer to show you an insurance card can keep your dealer insurance rates down. Remember, if a person drives up to your lot and can’t provide proof of insurance, there is a reason they are driving without insurance. Maybe they were involved in an accident and you should never allow that person to drive any of your demos. Click here for a dealer insurance providers.
You must provide an original dealer surety bond in the amount of $25,000, $30,000, $50,000, or up to $100,000. A dealer surety bond protects your customers against any unlawful or unethical actions by your dealership. If you operated unethically and had your dealers license suspended, ending up bankrupt, your customers would still be able to file a financial claim against your dealer bond.
It is very easy to obtain a dealer surety bond, just call your insurance agent. He or she should be able to provide you with an original surety bond at a cost of around $165.00, although different agencies charge different fees. The fee you are charged can also be based on your credit rating. Good credit scores allow you to find cheaper surety bonds and bad credit scores will increase surety bond prices. Some states may allow an irrevocable letter of credit instead of a surety bond. Irrevocable letters of credit are issued by banks and the fees vary greatly so check with your banker. Don't worry, if you operate your business with complete integrity and the highest ethical standards, you should never have financial claims against your surety bond. Click here for a list of Dealer Surety Bond providers.
Most state dealer license bureaus will require you to maintain regular
business hours. Your dealership will be required to be open during your
normal business hours and these hours of operation must be posted at an
outdoor location viewable to all customers. Some states require you to be
open a minimum of 20 hours per week and some states require a minimum of 40
Many states will require to you be closed on Sundays. If your state
prohibits Sunday operations, you may still do paperwork or clean up on a
Sunday. If you are at your dealership on a Sunday, and your state prohibits
Sunday sales activity, never, ever speak with customers on your lot on a
Sunday. If a law enforcement officer observes you even speaking to a
customer on your lot on a Sunday, it could be deemed sales activity on a
Sunday. Sunday sales activity could lead to immediate suspension or
revocation of your dealer license. Be sure to check with your state dealer
license bureau to find out if Sunday sales activity is allowed.
If you are running the business from your home address, or commercial location, someone will always need to be available during your hours of operation. Some states will allow motorcycle-only dealerships an exemption from the regular business hour requirement but most states require your dealership to be staffed at all times during your normal business hours. If your state dealer license bureau decides to inspect your records, they will show up unannounced during your hours of operation, so someone will need to be available to produce these records. If a representative of your dealer license bureau wants to conduct a records inspection and no one is available at your dealership to produce these records, you could have your dealer license suspended or revoked.
More and more states are requiring you to attend a dealer educational class before obtaining your dealer’s license. If your state has a dealer educational requirement, you should be able to find a class location near you. Just contact your state dealer license bureau for a list of approved dealer educational providers. Some states also require you to take a Dealer Continuing Educational Class every 2 years after you are licensed. Most states allow you to take your continuing educational classes online, but almost all states require first time dealer applicants to attend a dealer educational class in person. Pre-license dealer classes cost anywhere from $90.00 to $250.00 and continuing education classes run from $80.00 to $150.00 depending on the state.
Most of these courses are taught by currently licensed dealers, or formally licensed dealers. I am the lead instructor for Missouri Dealer Seminars, an official dealer educational provider for the Missouri Department of Revenue. To find out more about Missouri Dealer Seminars, please visit www.modealer.com. To obtain a Missouri dealer license for the first time, or if you have not been licensed for more than thirty days, you must first attend a Missouri dealer educational seminar. If you would like to attend one of my Missouri Dealer Seminars, you can sign up by clicking here.
I have found most of the people attending these classes, even someone that has operated dealerships for several years in the past, are very unaware of most of the new State and Federal compliance guidelines. These classes usually contain a goldmine of information about your state’s motor vehicle dealer laws and you will probably find the classes are very educational.
When I first obtained my Missouri dealer license, Missouri had no dealer educational requirement. I took all of my dealer application paperwork, drove to my state capital, Jefferson City, where they handed me a set of D-tags and said “Good Luck”. I did not know I had to report the sale of each vehicle. No one told me not to purchase my vehicle inventory before I obtained my dealer license. No one told me about dealer insurance. No one told me about records inspections. A few years later, Missouri, like many other states, passed a law that requires dealers to attend a dealer educational seminar before being granted a dealer license. Many other states also have a continued educational requirement that requires dealers to attend dealer educational classes every two, three, or five years.
Although the dealer classes may seem a bit pricey, you can make many times the tuition price on your first vehicle sale by implementing tips & tricks that you learn in your dealer educational class and avoiding common first time mistakes that could lead to severe financial penalties.
After you have completed every step above you can mail in your application packet. This dealer application packet will normally include your official state dealer license application form, your dealer bond, a copy of your insurance policy, copies of any franchise agreements, a copy of your State & Federal Tax ID numbers, and a copy of your dealer educational certificate of completion.
Many people want to get their license as soon as possible. You can probably deliver your dealer application packet to your state’s dealer licensing bureau by driving to your state capital. If you deliver all the necessary paperwork you should be able to come back with a set of dealer license plates on the same day. Be sure to contact your state dealer license bureau to find out if same day licensing is allowed.
Make sure to call your state’s licensing agency before sending in your application to make sure you are writing your check for the correct license fees and to make sure you are sending in all of the required paperwork. If you forget one required document in your dealer application packet, or if send in a check for the wrong amount for your license fees, your state dealer license bureau will not call you to inform you of the missing document or incorrect fees. They will probably send you an official letter in about two weeks. You will receive your letter a week or so latter, then you will need to mail in your missing document or new check, which can take another week. If you have one missing document from your dealer license application packet, or if you write a check for the wrong amount, your dealer license approval could be held up for four to eight weeks.
Most state dealer license bureaus will even send you a step by step check list for you to follow during your license application process. Be sure to include all the required paperwork and correct fees in your dealer license application packet before you send it to your dealer license bureau. To contact your state dealer license bureau click here.