What you need to know about obtaining a general contractor license
Obtaining a general contractor license can be intimidating. There’s a lot to do and prepare for. But don’t let that deter you. Your time and effort can pay off in a big way as your license can be a springboard to growing your business.
Before you dive right into the process, here’s some information to get your feet wet and gain a basic understanding of what’s involved.
Requirements are state-based
First, you’ll need to know your state’s specific requirements for getting a license. These can vary significantly, and some states don’t require a license in the first place. (If this applies to you, there are still advantages to obtaining your license, which we’ll address in this article.)
License requirements can differ based on the value of the job you’ll be doing. In Arkansas, for example, you need a license for any project worth over $2,000, but in Louisiana you’ll only need a license for commercial projects over $50,000. And in some states, a license requirement can be based on whether you’re working on a residential or commercial building.
Get started by applying
The license application process will include filling out a form and may involve any of these steps: submitting proof of workers compensation insurance and financial information, acquiring a surety bond, and undergoing a background check. This can take several months to complete, so plan accordingly.
You’ll likely be tested
A common requirement is to pass a trade exam and other exams, depending on the license you’re seeking. Exams can cover a variety of topics like estimating, framing, safety, business, the law and more. Study guides, practice exams, and even prep schools are available to help you prepare.
You’ll likely need proof of business insurance as well. Aside from being a requirement, clients prefer an insured contractor who is protected in the event they are sued. Otherwise, a lawsuit could prevent the project from being completed on time. Learn about insurance options to protect your small business.
3 benefits of obtaining a license
Now that you have an idea of what the process entails, here’s why you should pursue a license.
1. A license opens the door for business growth
Many states require a license to perform any contracting work, so a license is essential to work on even small projects. In California, for example, a license is required to work on projects worth $500. For contractors in other states, having a license moves you from a small pond to a lake with opportunities for landing larger fish. For example, in Mississippi, general commercial and residential contractors must hold a state license to work on projects worth more than $50,000.
2. You’ll have a marketing advantage
Consumers do their homework and look for businesses with a good reputation and top performance for home improvement and other construction contracts. A license will show your knowledge and competence and let you stand out among those without a license. You’ll need to do your part and market yourself, leveraging your license alongside your experience and expertise.
Additionally, many homeowner’s insurance policies require that a job must be done by a licensed building contractor.
3. You’ll avoid fines and other penalties
If you are unlicensed and do work that requires a license, you may be breaking the law. Each state is different, so it can be tricky to know what type of work is considered legal or illegal without a license. The consequences could be fines or even jail time. In Florida, for example, contracting without a license can result in a fine of up to $1,000, probation, or jail time for up to one year.
After obtaining your license, don’t forget to look into protecting everything you’ve built with the right type of business insurance for your unique needs.