Why a Business License Can Be a Good Idea for Your Home Business

A business license provides a level of legitimacy to your home business.

Many home business owners don't bother with applying for a business licence — especially if the business involves providing services like freelancing or consulting. However, there are some benefits to applying for a business license, even if you don't think you'll need one.

What Does the Law Say?

First of all, you need to find out the law in your locality. Some cities don't require some types of home businesses to register, while other towns want all businesses to apply for a business license.

The cost of a business license varies by city and state. I registered my license with the state, and renew it each year. Right now, the annual renewal in my state is $15. Other states might have a higher rate. Additionally, some cities and states differentiate between types of businesses, so you might need a particular class of license for your home business.

If the law says you're supposed to have a business license, and you don't have one, you could find yourself in trouble in your city finds out about it. You are likely to be fined in such circumstances, and that can be quite pricey.

Even if you think you can avoid the notice of the authorities when it comes to your home business, applying for a home business license does come with other benefits.

Business Bank Account

Most banks won't let you open a business bank account unless you have proof that you are, in fact, a business. It's a good idea to keep business accounts and expenses separate from those that are personal. A business bank account can help you do that. However, many banks won't let just anyone open a business bank account. Your business license can show the financial institution that you are a legitimate business.

Also, be aware that you might need an Employer Identification Number (EIN) from the IRS in some cases. Applying for your EIN can also be a good idea as a business owner.

Get Business Loans

Your business license can also increase the likelihood that you will qualify for a business loan. If you are looking for a little business credit, you will have a little more success if you are recognized as a legitimate business.

Banks are more willing to work with you if you have a business license, and a business bank account with their institution. While it takes some time to build up business credit and qualify for the loans you want, a business license can start you well on your way.

Bottom Line

A business license adds legitimacy to your business. Whether you want to show your clients that you are bona fide, or whether you need a license to open the accounts you want at the bank, your business license can help. Plus, it might be required by law in your locality, and you don't want to be fined.

Written by Miranda Marquit

Miranda Marquit is a freelance writer and professional blogger, specializing in personal finance, small business, and investing topics. She writes for a number of financial web sites and blogs, and has been featured in numerous media. Read about life as a freelancer at MirandaMarquit.com and in her book Confessions of a Professional Blogger.

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