- Why it’s so important to do your own research.
- What a licensing plan is and why you need one.
- The difference between a permit and a license.
- Where you can find the necessary permits and licenses for your state.
- Other resources for finding important documents for your company.
Whether you’re running a multi-million dollar window cleaning service or a neighborhood bar, you’re going to need the necessary licenses and permits for your business.
These documents are some of the main requirements to start a business, own a business, or acquire a business. Understanding the different types of business licenses can only help you succeed.
Do I Need A Permit Or License To Start My Business?
While business owners almost invariably need specific licenses and permits to operate, the unfortunate truth is that this information isn’t always easy to come by. Each state, as well as many counties and cities, requires business owners to have specific licenses and permits related to their industry. That means that there is no central database of information and no “new business license lists.”
What’s worse is that each municipality has its own requirements, and no two are the same. The necessary documents to register a business in California will be different from the documents required to own a company in Louisiana. A small business license in Texas is not the same as a small business license in Alaska.
This is a problem that many Acquisition Entrepreneurs bump up against when acquiring a business, usually after issuing an LOI but before securing a loan. Being aware of the necessary permits and licenses needed to operate a business ahead of time will save you a lot of headaches in the future. It will also ensure you’re prepared when you start conversations with lenders looking for a loan to secure the business.
Have A Licensing Plan
During your entrepreneurial journey, you’ll find that many lenders require you to have licenses before acquiring a company. This can lead to bottlenecks in the acquisition process and headaches for the buyer if you’re not prepared.
Daniel Elizondo is the Director of Acquira’s Acceleration Program. He is currently in the process of acquiring a company himself. He realized the importance of licenses when it came time to secure a loan for his acquisition.
“It seems to me that I am always in a catch 22 situation,” Daniel says. “If I don't have a license, then the loan will not be approved. If the loan is not approved, the lawyer cannot complete drafting the agreement. And then, the seller is asking for the agreement. And man, it’s complicated.”
Brandon Bolen is VP of the Service Contractor Team for Live Oak Bank. Acquira and Brandon have worked together on many deals, especially centered on HVAC businesses, and he says this is a very common problem for Acquisition Entrepreneurs.
“I know with Acquira, a lot of the people you work with that are looking to buy a home service company are not going to have the ability to get a technical license within the first few years of owning the business,” Brandon explains. “We will do those types of deals where the guarantor is not a license holder, but we do look for a robust licensing plan.”
As Brandon explains, any potential business buyer should be aware of the required licenses before seeking a loan, and they should have a well-defined plan on how to get those licenses.
There are a handful of ways to get through the licensing problem. Brandon says buyers can team up with a local GM who wants to own a business and needs a partner. They could also create a plan to hire two or three people at the business who already have the necessary license. The important part is to have a licensing plan you can show the bank and for that plan to have many contingencies.
The important part is to have a licensing plan you can show the bank and for that plan to have many contingencies
“We like to have that all hashed out prior to approval,” he says. “Not in the sense that they have to have that person. But they have to have a plan prior to approval because some people will come in and say, ‘Oh, I haven't thought about that, but I don't want to think about that until I get approved.’ But for us, that's a very big sticking point.”
Creating a licensing plan should be part of your due diligence process and is a perfect example of the systematic excellence that we deeply believe in at Acquira.
Different Types Of Business Licenses
Different types of permits can include lease agreements, zoning permits, and many more. If you’re buying an HVAC company, you may need permits that allow you to dispose of certain hazardous materials properly; if you’re buying a construction company, you may need to familiarize yourself with various building permits and codes in the area.
Whatever the business you’re buying, it’s imperative that you understand what licenses are required before you buy a business. When in doubt, you should check with the local city clerk to see what the requirements are. We’ve provided links to additional resources below.
What Happens If You Operate A Business Without A License
As Credit Suite explains in the video below, there are a number of problems you might encounter if you try operating your business without the proper documentation.
For one, you could be sued for fraud. It can also do untold damage to your business reputation and scare off potential customers.
When operating a business, you’re agreeing to provide a service to the community. If you jeopardize that trust, it’s very likely that you’ll lose customers forever.
Difference Between License And Permit
The terms “license” and “permit” are often used interchangeably, but there are a few subtle differences.
Permits are generally restrictive or temporary. Licenses are more often permanent.
Permits usually require occasional inspection and safety standards. Moreover, a person may be required to obtain permits even after they already have a license.
If you think about this in terms of a driver’s license, the license enables a person to drive a car. A driver’s permit, on the other hand, comes with many restrictions upon the holder – ie: they need to be accompanied by a more experienced driver, or they can’t drive at certain times or on certain classes of roads – before they can get a license of their own.
Business License Resources By State
We’ve pointed out a few times that the type of permit or license for a business can vary wildly between different jurisdictions. So we’ve combed the web for various resources and lists by state, which you can find below:
- The local SBDC or town/city clerk where the company is located. This is a good place to start looking to ensure you’re familiar with the necessary city-level permits. The city clerk should have a comprehensive list of the licenses your business needs.
- CityApplications.com: This allows you to search for contact information at the city level for permitting and other licensing information.
- SBA.com: Don’t confuse this with the Small Business Administration. Small Business Advice provides business information, including business permitting and licensing specifics by state. Though be aware the site has information on some states more than others.
- SBA.gov: The Small Business Administration lists many of the federal licenses and permits necessary in different industries, though it is somewhat short on state licensing.
There is no single repository for all of the necessary documents to own a business. Hopefully, the resources provided here can help you get started. If you need any additional help, you should contact your city clerk to see what you need.
Being aware of the prerequisites for owning a business will speed up the process and make your life much easier when you eventually start looking for a loan. The more prepared you can be, the better when it comes time to find a lender.
If you know of anyone struggling to find the proper permits for the business, please share this article with them. Have you run into similar hurdles on your own acquisition journey? We’d love to hear about them in the comments below.
If you’re interested in starting your own acquisition journey and buying a company of yourself, set up a call with us today to learn more about the programs we offer.
- Every industry requires various licenses and permits to operate a business.
- When seeking a loan, you need a licensing plan with many contingencies.
- You have to do your own research into what licenses you need.
- When in doubt, contact the city or town clerk.
Acquira specializes in seamless business succession and acquisition. We guide entrepreneurs in acquiring businesses and investing in their growth and success. Our focus is on creating a lasting, positive impact for owners, employees, and the community through each transition.