Business Licensing: The Ultimate Guide [New For 2024]

Business Licensing FAQs

• What are the different types of business licenses?
• Why is business licensing important?
• What are general eligibility requirements to obtain a business license?
• What are the typical steps to acquiring a business license, and what is local government’s role in each step?
• What type of support can local government provide to business owners seeking a license?

Obtaining a business license is a vital step for any business owner, but sometimes the process is too complex. There are times, business owners have to navigate several sources to understand regulations. And then they wade through forms and documentation to reach their goal of the coveted business license. It doesn’t have to be that way!

While your government agency has the very important job of overseeing the licensing process, you and your staff also are poised to help business owners overcome challenges. The more you can support your entrepreneurs, the more likely they are going to spread the word about the ease of working with your agency. Those good words can multiply, attracting more business that translates into community growth.

So how do you get started?

Let’s start by taking a deep dive into the business licensing process. We’ll talk about the nuts and bolts of business licensing, as well as tips on how to streamline your licensing process and help your business community thrive.

What is Business Licensing?

To get technical, a business license is an official document issued by a local government agency that allows individuals or organizations to operate legally within the municipality’s jurisdiction. It essentially ensures a business complies with local, state, and federal regulations.

Obtaining a license requires business owners to complete an application and pay a fee. Business owners also likely have to meet certain compliance standards, depending upon the nature of their business. Business licenses not only ensure they are operating within a legal framework, they also protect their customers and your community members.

Types of Business Licenses

The type of business license your agency requires depends upon the products and services offered. And sometimes you may require a business to obtain more than one license or permit. It all depends upon the business’s operational needs and regulatory requirements.

Let’s take a look at the different types of business licenses:

• General Business License: This is the most common license because it applies to nearly all types of businesses. It provides assurance that the business complies with local regulations.
• Retail Businesses: Those selling goods directly to consumers will need a general business license and a sales tax permit, which allows them to collect sales tax from customers. Additional permits may be needed, depending on the location and the type of goods sold. For example, resellers often need a resale certificate.
• Restaurants and Food Services: Restaurants and food service businesses need a range of licenses and permits, including a general business license, a food service license, and a health permit. The food service license ensures compliance with local food safety regulations, while the health permit confirms they meet sanitation and safety standards. Your agency may require other permits for alcohol sales, outdoor seating, or specialized food handling.
• Short-term Rentals: People who want to rent their property, primarily through sites like Airbnb or Vacation Rental By Owner (VRBO), likely need a license to rent a portion or all of their property to visitors. Short-term rentals are usually defined by a time limit, such as no more than one month. The license demonstrates that the property owner meets health and safety standards and that neighboring property owners have been notified of the rental agreement.
• Home-Based Businesses: Home-based businesses often require a general business license, and you may require a home occupation permit. A home occupation permit ensures the business owner complies with zoning regulations and does not disrupt the residential neighborhood.
• Professional Services: Doctors, lawyers, accountants, and consultants typically require a professional license in addition to a general business license. This license verifies that the individual or business meets industry-specific education, training, and certification requirements.
• Online Businesses: Online businesses may require a general business license, plus an e-commerce permit or sales tax permit, depending on the sales activities. Online businesses must comply with regulations related to digital transactions, data protection, and consumer rights. Sales tax permits are crucial to collect and remit sales tax.

Why Business Licensing Matters

Business licensing is an essential tool for local governments to ensure businesses comply with laws and regulations. By requiring your local businesses to be licensed, you ultimately protect the community by standardizing their practices, safeguarding the public, and promoting a competitive marketplace.

While ensuring businesses operate legally is a primary benefit of licensing, protecting public health and safety is also high on the list. It’s likely you require physical, onsite inspections and adherence to safety standards to get and keep a business license. Imagine if a restaurant or healthcare provider operated without any oversight! A community’s well-being hinges on ensuring businesses adhere to license standards.

Business licensing also levels the playing field, ensuring the entire business community is following the same rules. Business license requirements may involve background checks, financial disclosures, and adherence to industry standards. This all helps raise the bar on businesses operating transparently, fairly, and ethically. And that builds trust in business and in your community as a whole.

Local Business Licensing Requirements and Eligibility

No matter what type of business starts up in your community—whether a sole proprietorship, partnership, corporation, or limited liability company (LLC)—you will likely ask them to acquire a business license.

During the application process, it’s essential to ask for identification, like a driver’s license or passport, as well as details about the business, including its name, address, type of operation, and the owner’s federal Employer Identification Number (EIN).

• Other documentation municipalities may require includes:
• A business plan to ensure the owner has thought through every aspect of the operation to ensure greater success.
• Results of a criminal background check.
• Proof of financial stability.
• Proof of insurance.

The Business Licensing Process

With business licenses tied to laws and regulations, it’s important business owners cross their t’s and dot their i’s throughout the business licensing process. Therefore, you’ll want your process to be systematic and easy. Our step-by-step guide walks you through the essential stages of acquiring a business license, from initial research to final approval.

Researching license requirements.

This is the most important step for business owners. It’s beneficial for them and you if your agency provides easy access to licensing requirements for your local municipality and your state. Make sure your website is updated with the most recent requirements for every type of license or permit a business will need.

Make it easy for entrepreneurs to read the information by writing concisely and using bullet points or a numbering system. Consider providing business owners with checklists and guides they can download.

Note: It’s important that business owners keep up with additional requirements or changes in regulations within their industry. Encourage them to join industry-specific organizations and consider developing your own system of alerting them to business licensing updates. Permitting and licensing software developed specifically for local government has features built in that allow your staff to quickly and easily send emails to your community’s business owners.

Submitting the application.

Once the research is done and a business owner has gathered needed information, it’s time to complete and submit a business license application. Make sure your application is easy to read and understand. Ask a coworker, friend, or family member to take your business application for a test drive to see if they have questions or run into issues. Consider investing in business licensing software that offers tried and true application templates.

Paying business license fees.

It’s important to require business licensing fee payment when the application is submitted. Here again, business licensing software makes the payment process easy by allowing for online payments. By accepting online payments, you’ll reduce your staff’s workload. Plus, business owners—your customers—will enjoy the convenience of applying and paying for a license 24/7/365.

Scheduling an inspection, if needed.

You may require some businesses to complete an onsite inspection before the business license is approved. This is true for businesses that must meet certain health or safety standards. Permitting and licensing software can streamline this process for your agency. The software dramatically reduces phone calls and in-office visits by allowing business owners to schedule the inspection through an online portal. What’s more, staff can review plans and complete tasks using a mobile device and an app.

Renewing and updating licenses.

Just like your driver’s license, business licenses also have an expiration date. Renewing a business license typically involves submitting a renewal application and paying the fee. When business owners are up for renewal, make sure to ask about significant changes, like whether they’ve moved, a change in ownership, or a change in a business name. (In reality, you should have a process in place for business owners to report these changes within a certain timeframe.)

Online portals make this process easy for business owners and your staff with email reminders, secure online payments, and renewal progress tracking.

How much time it takes a business owner to get a license depends upon several factors: the type of business they want to open, the complexity of the application, and the efficiency of your licensing process. It may take a few weeks, or we’ve heard of some processes that take several months. The most common challenges business license applicants face usually involve wading through complex regulations, delays due to incomplete or inaccurate applications, or issues noted during an inspection.

To help business owners overcome these challenges, provide thorough information on every type of license you offer. Make sure your application is easy to understand and note clearly which information is required and which is optional. Most important of all, keep an open line of communication with prospective business owners. By being proactive, you’ll streamline the business license process and minimize potential obstacles that can stand in the way of the entrepreneur and your staff.