5 Reasons You Really Need Your Contractor’s License Before Starting Your Business

A contractor license and tools on a table.

If you have been working in construction for a while, you may already know several people who manage to secure paying contracts without a valid license. Although this route may sometimes seem like the easiest path, here are a few reasons you’ll be glad you did it right the first time.

Clients Check for Licenses on All Kinds of Jobs

If you look at any guide for property owners about hiring a contractor, asking for a valid license is usually one of the first items on the list. Why is this? It’s not just that a contractor with a current license to do the work they bid on is more likely to have gone through the necessary training and practical experience. Part of maintaining your contracting license is to keep up insurance for you and your employees. People who do not have an active license might not have insurance, putting their clients at risk. Those clients might even be held criminally liable, if they know that the contractor they hired needs a license but does not have one.

A Valid License Opens Up Bigger Projects

Nobody wants unpredictable degrees of liability, especially on larger projects. When you first get started, you might do more work as a subcontractor than your own individual jobs. To secure a lucrative position under another business, you may have to show your license even to get your foot in the door. If you want to:

you need the kind of credibility that only comes to those who get and keep an active license. Your license isn’t the only thing that will help you build a solid reputation, but you won’t get very far without it.

Good Employees Stick With a Steady Business

A business is only as good as the people who work for it. Once you get to the point where you need to hire someone other than yourself, you really want to have the advantage. Construction’s labor shortage means that the most qualified people are always going to be in demand. If you were a skilled worker, would you want to work for a company that always operated above the table and had nothing to fear? Or, would you work with a business that was perpetually on the edge of ruin, worried about being caught and going under? Keeping up your license helps you stay in the former group, and avoid the latter.

States Look for Unlicensed Businesses

Unlicensed contractors can cost states a lot of money. People who already operate outside of state law might break code or wreak all kinds of havoc. It also makes it harder for people like you to secure bids that allow you to keep your business going. Conscious of a vulnerable population, states including California often search out unlicensed businesses. Every time a company with no license (or an expired license) bids on a job over $1,000, they run the risk of getting caught in a sting operation.

Penalties Can Be Steep

Getting the license and maintaining the proper insurance and bonds costs money. However, getting caught without a license will often cost more. For the first offense, people may have to pay a penalty of $5,000. There are added fees for unlicensed contractors who bid on certain types of work, such as repairs done in a natural disaster area. A second offense usually involves a fine, but may also include prison time. Falsifying a license or lying to consumers about holding a current license is considered a felony.

Working toward your contracting license is an ideal way to ensure that your business can succeed now and in the future. For more information about preparation programs for the contractor licensing exams, contact CSLS today!