Grain Dealer Bond 101

Grain dealers are a person or business entity that either buys, solicits or processes for sale or resale, agrees to store or exchange grain, or transfers grain. Depending on what state you live in, if you run a business that trades with grain, you may be required to become licensed with your local authorities. To secure proper licensing, a grain dealer bond is often required. 

Let’s take a closer look at what a grain dealer bond is, who needs one, and how much it costs to secure one. 

What is a Grain Dealer Bond

Grain dealer bonds can provide much needed protection in the grain industry. A grain dealer bond ensures that the business holding the bond—who deals with grain—will comply with any legal requirements needed to run their business. Essentially, a grain dealer bond exists to protect the grain producers these dealers work with, as well as their agents and representatives. 

When a business takes out a grain dealer bond, the grain dealers can rest easy knowing that the grain dealer will account for all of their sales and will make all necessary payments to their producers. If the grain dealer fails to follow the rules, they will face a claim on their bond. The bond will then provide compensation to the affected parties. The affected parties can be the state or members of the public who experience harm, losses, or damages due to a grain dealer violating the grain dealer bond agreement. 

Similar to other surety bonds, grain dealer bonds represent a contractual agreement between three parties. There are three parties involved in the issuing of a grain dealer bond. These three parties are the:

  • Principal. This is the grain dealing business that buys the grain dealer bond.

  • Obligee. The state authority that requires the grain dealer bond.

  • Surety. The surety is the bond company that issues the grain dealer bond and pays out any approved claims. 

If a violation on behalf of the grain dealer who has taken out a grain dealer bond does occur and a claim is filed against the bond, the surety company that backs the bond will pay out the claim. The grain dealer isn’t off the hook here. While the surety is the party who initially pays out the claim to the victim, the principal (aka the bonded business) will need to repay the surety for the full claim amount. 

Who needs to get a grain dealer bond?

It’s pretty clear cut who needs a grain dealer bond and who doesn’t. If you operate a grain dealer business in a state that requires grain dealer bonds, you will need to post a grain dealer bond if you want to secure your state license. 

The following states currently require grain dealer bonds:

  • Alabama

  • Arkansas

  • California

  • Colorado

  • Delaware

  • Florida

  • Georgia

  • Idaho

  • Indiana

  • Iowa

  • Kentucky

  • Louisiana

  • Maine

  • Maryland

  • Michigan

  • Minnesota

  • Mississippi

  • Missouri

  • Montana

  • Nebraska

  • New Mexico

  • North Carolina

  • North Dakota

  • Oregon

  • South Carolina

  • South Dakota

  • Tennessee

  • Virginia

  • Washington

  • West Virginia

  • Wisconsin

If you’re unsure whether or not your business needs a grain dealer bond, when you go to get licensed, you’ll find out if you need to get your hands on one of these bonds.

How much does a grain dealer bond cost?

Grain dealer bonds aren’t very expensive. That being said, how much a grain dealer bond will cost you depends on the bond amount set for your grain dealer business as well as how financially strong you and your business are. 

Coverage amount is one of the main factors taken into consideration and each state has varying requirements about how much this coverage needs to be. Double check with the authorities that regulate grain dealer businesses in your state to find out how much your coverage must be. Alongside the required bond amount, your financial situation will impact how much you need to pay for your grain dealer bond.

The surety will examine the following things when determining how much your bond cost will be:

  • Required bond coverage amount

  • Personal credit score

  • Business financials

  • Liquidity

  • Assets

In order to become bonded you will pay a bond premium that equates to a small percentage of the bond amount. If you are in a good financial position (such as having a high credit score), you can expect that rate to be between 1% and 5%. Let’s say you have to post a bond amount of $20,000 and have a 2% rate. You’ll pay a premium of $400.

Again, these amounts can vary, but generally you’ll only pay a small amount of money to get a grain dealer bond.