Do you need a business license?

Starting a business is a busy and exciting time. There are a lot of details to attend to, so it’s important to stay on top of everything you have to do. One thing you might not have asked yourself yet is, “Do I need a business license?” It depends on what type of business you have and where it’s located, but in many cases, the answer is yes. 

Here are some of the licenses a new business might need. 

Federal licenses

If the business you are in is regulated by a federal agency, you will need a federal license. Examples of these kinds of businesses include those that deal in alcohol, agriculture, firearms, fish and wildlife, mining, nuclear energy, broadcasting, and more. The Small Business Administration has a complete list of industries that require a federal license. 

State licenses

States regulate more kinds of businesses than the federal government does, and the requirements, as you might expect, vary by state. You’ll need to do some research to determine whether you need a license to operate your business in your state. Your state’s website should have links to resources for businesses, with information on the kinds of licenses you need to operate a business in that state.  

Municipal licenses

Your business may also require a license from the county, city, or town where it’s located. Check with the municipal office to see which licenses you need. 

Industry-specific licenses

Some industries require a specific license, which may have educational requirements associated with it. Some of the professions that require a license include:

•    architects
•    cosmetologists
•    health care workers
•    real estate brokers
•    skilled tradespeople, such as plumbers, electricians, etc. 

In general, if you have to have specific education or training in order to work in a given industry, it's likely that you need a business license to operate a business in that industry. You may also need to take courses on a regular basis in order to maintain your professional license.

What do you need to apply for a business license?

Requirements vary by jurisdiction and industry, but most applications ask for a similar core set of information. Having these ready before you start can speed up the process:

• A business plan describing your business structure and activities
• Government-issued identification, such as a driver's license, Social Security number, or ITIN
• An Employer Identification Number (EIN) from the IRS, if you have one
• Proof of your business address or premises
• A "doing business as" (DBA) or trade name registration, if you're operating under a name other than your own
• Payment for the applicable filing fees

Processing times vary widely, from same-day approval to several weeks, so it's worth applying as early as possible once you know which licenses you need.

What happens if you operate without a business license?

Operating without a required business license can lead to fines, penalties, or an order to stop doing business until you're properly licensed. Depending on your industry and location, it can also make it harder to open a business bank account, bid on contracts, or renew other permits down the line. If you're ever unsure whether you need a license, check with your city, county, or state licensing office before you open your doors. 

Licensing requirements typically have little to do with whether your business is brick and mortar, home based, or online. But if you operate your business out of your home  you may be subject to homeowners’ association restrictions. In some cases, you may be required to obtain a permit to comply with zoning ordinances. Check with the association to see what their requirements are. 

Obtaining the proper licenses is one way to make sure your business is protected. Another way is with business insurance. Learn more about how insurance can protect you from the risks you can’t see coming.