Updated May 21, 2020
A business license is a legal document that grants you the right to operate a business in your city. Obtaining a business license is a crucial primary step in legally starting a business. If you fail to abide by the licensing and permit requirements for your specific type of business, you run the risk of additional fees, penalty payments, and operational restrictions until the requirements are met.
How a Business License Works
Although business licenses may seem unnecessary, they exist to protect the general public. Local, state, and even federal governments use business licenses to control the quality of businesses and operations that emerge, often focused on consumer health and safety. For example, a new restaurant will have to pass certain health inspections to prove that their restaurant is safe before they can obtain a business license. If they plan to sell liquor, they will need a license for that as well.
Certified business licenses give customers confidence in the professionalism and thoroughness of your business, and also improve the overall value of your organization. After all, a business license can open new opportunities for your business as certain vendors, agencies, and organizations will only work with you if they have proof of your licensure with the state. Additionally, business licenses also serve as crucial documentation for other business necessities, such as small business loans.
Does Your Business Need a License?
Almost every business will need some type of licensing to operate legally in their state, however, some industries face stricter regulations than others. Some licenses such as basic business licenses, payroll tax registration, or sales tax registration are required for all businesses operating within a certain jurisdiction. Other licenses are industry-specific and will require research to find out if your specific type of business requires additional licensing.
1. Do Your Research on Business Licensing
Before you can get a business license, you will need to know what type of license(s) and permits you will need. Most areas in the U.S. require some type of an operating license at the local and/or state level, but depending on your specific business and location, you may need additional licenses and permits from health, fire, or zoning departments. It is important to research your business type and state and local regulations. If you are unsure of which licenses are required, you can call the licensing bureau of the city you operate in for specific licensing requirements and application procedures. Typically, you will need to establish a business type and provide contact information and a physical mailing address before proceeding with your application.
2. Check if Your Business is Federally Regulated
Although not very common, certain industries are regulated by the federal government to hold corporations accountable for the amount of power they have in a business-driven society. These industries include:
- Alcoholic Beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime (naval) transportation
- Mining and Drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
If your business is regulated by the federal government you will have to comply with federal permits, which can be time-consuming. For example, restaurants that want to serve alcohol must obtain a liquor license, which is often a lengthy and cumbersome process.
3. Find out Where to Get a Business License in Your City and State
Each state has its own specific rules regarding where and how to get a business license, as well as which business requires a license. Not every business needs a business license at the local, state, or federal level. You should take the time to visit your city and state’s websites regarding business licenses, as they will be able to inform you on whether or not a business license is needed.
4. Apply for Your Business License
To obtain a business license you must know the business code for your specific entity type, which can be found on your city’s business license website. From there, you can locate the forms you will need to fill out. While these are typically posted on your city’s business license website, the Small Business Administration’s state-based resources are also a great resource.
After gathering all of the necessary forms and applications, complete the paperwork online or print them out and fill them by hand. Once completed, you need to file the forms with your city’s finance department, either online or via U.S. mail. Contact information for your application and forms can be found on the city’s website. Please note that you will usually be asked to pay a filing fee, which depends on your city’s specific requirements — typically between $25 and $50. It can take anywhere from a couple of days to two weeks to process your license, and you may need to pick up the license in person and provide identification to prove you are the true business owner.
Other Resources on Obtaining a Business License
There is no one way to obtain a business license, as the process varies between each city, state, and business type. However, there are some great resources to help you get started:
- Local city or county office that issues licenses/permits
- A local friend or family member who owns a small business
- A local lawyer who works with business
Obtaining a business license can be complicated, tedious, and time-consuming. However, it is a very important step in establishing your business and ensuring that your operations are legal. Keep in mind that business licenses expire, so make sure to keep track of renewal dates so your business remains compliant.
Director, Marketing & Strategic Partnerships at Credibly