If you’re thinking about starting a business as a car dealer, there is a lot more to it than hanging a sign and welcoming car buyers. The process to obtain a car dealer license varies by state, but it’s typically quite involved and has rather detailed requirements that must be met before you’re able to start selling.

The sometimes surprisingly stringent requirements are to protect buyers and ensure that all regulations pertaining to car sales are followed. Many of the requirements will be similar from state to state, but it’s important to check with your state’s DMV for the specific requirements in your area.

We’ll look at Texas as an example of what is required for obtaining a dealer license.

Note that applying for a dealer’s license is a complicated process, and this article is intended to provide general information only and is not legal advice.

Obtaining a Car Dealer License in Texas

As is the case in most states, several steps are involved in securing a dealer’s license in Texas. The first is to get a General Distinguishing Number, or GDN. The GDN is not your license, but rather it’s the first step in the process of obtaining your license.

Before applying for your GDN, you’ll need to watch a 6-hour web-based class. There is no test required, but you will have to print the certificate that shows you completed the class and submit it with your GDN application. Applications without this certificate will not be approved.

If you want to sell both new and used cars, you’ll need a separate GDN for each.

License Application

Once you have the GDN, you can move on to the license application. Since there are several different types of dealer licenses, it’s important to make sure you’re applying for the correct one. If you apply for the wrong one, you may have to start the process over.

The different types of licenses are:
Franchise
Independent
In-Transit
Trailer
Leasing
Manufacturer
Distributor
Representative
Salvage
Convertor

In some cases, you’ll need more than one license. For example, if you plan on purchasing a franchise, you’ll need a franchise license in addition to your other license requirements. Another example is if you want to sell cars and trailers, you’ll need separate licenses for each.

Securing a Bond

All dealers are required to secure an Auto Dealer Bond for $25,000. The bond can be purchased from a surety company, and its point is to protect your customers from fraud or misrepresentation. No Texas Auto Dealer license can be issued without this bond.

The cost of the bond varies based on the personal credit score of the applicant. At the time of this writing, the $25,000 bond costs:
$250 for applicants with excellent credit scores
$1,000 to $3,750 for applicants with bad credit

Meeting the Requirements

Before you can become a Texas dealer, you’ll have to show the state that you have what you need to conduct business. Examples of requirements include:
A commercial building with at least 100 square feet of space and 7-foot ceilings
Building must have electricity, heating, and lighting
Building must be furnished with a desk, two chairs, a file cabinet, computer, printer, and fax machine
Internet access and a working phone line (not a cell phone) must be available
Space to display at least 5 vehicles
Permanently posted sign with letters at least 6-inches high that is clearly visible to the public
Signage that indicates business hours

While some of those requirements seem oddly specific, they are not without reason. For example, the file cabinet is to securely hold dealer license records, which must be kept in your business building on record. The internet access is required because it’s needed to issue temporary tags to customers.

Submitting the Application

All paperwork and proof of your bond will be submitted to the Texas DMV, and this can be done through their online portal. The license fee can also be submitted online. Currently, the fee is $700 per license category.

It generally takes two to three weeks for applications to be approved. Once issued, the license is good for two years, at which time it must be renewed.

Applying in Other States

As mentioned above, while many requirements are similar, exact requirements vary by state. For example, the cost of the required bond is different based on the state in which you’re applying, as are the requirements about the size of the lot or building.

Below, we’ve provided links to jumpstart your research. Just click on your state for information about applying for a dealer’s license.

Can You Secure a Dealer’s License as a Felon?

A common question is whether or not you can obtain a dealer’s license if you have a felony on your record. The answer: possibly with a lean towards probably. In most cases, you’ll still be able to get a license, but this depends on:
The state in which you’re applying
The nature of the conviction
The length of time since the conviction

In order to be approved with a felony on your record, you’ll need to have had your civil rights restored. Non-violent crimes, such as a DUI, will rarely have an impact on whether or not you’re approved. If the crime was related to motor vehicles, it’s much more likely to result in a denial.

Many states offer the option of an abbreviated application. This allows you to see whether or not you’d be approved without having to go through the process of securing a building and meeting all the other requirements needed to submit a full application.

Even though several steps are involved, there is nothing difficult about the application process. Just take it one step at a time and be sure all paperwork is filled out completely to ensure there are no delays in your application. If you have questions, you can also reach out to your state’s DMV for clarification.