General contractor with safety vest and hardhat smiles and shakes hand of man in a business suit.
While general contractor license applications vary by state, there are some commonalities among licensing requirements. — Getty Images/dusanpetkovic

Virtually every small business needs a license to operate. Depending on your location and the type of business you run, you may even need multiple business licenses and permits.

General contractors aren’t excluded from this requirement. Some states may require multiple licenses to operate. Check with your local government to learn the specific licensing requirements for your state and municipality.

Although requirements will vary, there are many typical standards you can expect to meet when to qualify for a contractor license. Here you’ll learn why you need a license to operate as a general contractor and some of the requirements you’ll need to meet.

[Read more: Starting a Business? A Guide to Business Licenses and Permits]

Why do you need a license?

Often, licenses are required for contractors to bid on high-value projects or grow their business through hiring or subcontracting. States may require you to apply for two basic types of contractor licenses.

General contractor license

A general contractor license is required for anyone taking the prime contract on a construction project. This license may be necessary depending on the project’s value and whether the project is residential or commercial.

“A contractor license allows you to apply for general contract jobs that pay over $500,” wrote Indeed. “You also need a contractor license if you intend to start your own contracting business, hire subcontractors or advertise your services. This license also allows you to take a wide range of more extensive jobs that a handyperson may not be able to bid for, allowing you to earn more money.”

A contractor license allows you to apply for general contract jobs that pay over $500. You also need a contractor license if you intend to start your own contracting business, hire subcontractors or advertise your services.

Indeed

Subcontractor license

Many states also offer a subcontractor license for companies working under the primary general contractor. Electricians, HVAC technicians, and water, sewer, and gas plumbers are all examples of subcontractors who may need a separate license.

Some states require you to have a license to get general contractor insurance. It’s also a good idea to have a license before you apply for worker’s compensation and liability insurance.

Note that there’s a difference between a license and a business registration. Registering your business with the state simply means you’re listed in the state registry. Licensing usually requires passing a competency test, providing proof of relevant work experience or verifying your financial records.

Contractor license requirements

While applications vary by state, expect to see some commonalities among licensing requirements. Most states want to see proof of industry experience, as well as passing results from trade, business or law exams. You may also need to present proof of your financial records, showing your net worth and evidence of general liability insurance.

Many license applications also ask you to take a test to show that you are familiar with your specific trade’s best practices, codes, industry regulations and business practices. This is to ensure that contractors are ethical and highly trained.

If you’re a new business with no industry experience on record, you can still find ways to operate. “You can enroll in training programs organized by trade unions and professional guilds,” wrote Indeed. “If you have a degree in related fields such as construction management, it can boost your chances of getting a license before gaining experience.”

[Read more: 5 Costs Every Startup Should Plan For]

Alternately, consider partnering with an experienced, licensed contractor to be grandfathered into their contract upon their retirement. New businesses can also partner with a responsible managing officer (RMO) or responsible managing employee (RME). These partnerships take advantage of oversight from professional, licensed general contractors to allow new businesses to bid on high-value projects.

License requirements by state

Insurance has an extensive guide to the state-by-state general contractor licensing requirements. Note that eleven states don’t require contractors to have a license before applying for work. These states are Colorado, Florida, Indiana, Kansas, Louisiana, Missouri, New Hampshire, New York, Ohio, Pennsylvania and Wyoming.

Regulations can change, however. There may also be local rules in place, so be sure to check before you apply for a new contract.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published March 24, 2022