Contractor license requirements depend on your state, your trade, the size of your jobs and the city or county where the work is. No single list can tell you what applies to you. What this lesson gives you is the map: the six kinds of permission and protection a contractor deals with, who issues each one, and the exact questions to ask each office so you can find your own answers.
This is general information, not legal or insurance advice. Only the issuing office can tell you what you need. Confirm every requirement with your state’s licensing board, your city or county, and a licensed insurance agent.
Six things that are easy to mix up
| What it is | What it does | Who issues it | When |
|---|---|---|---|
| Business registration | Makes your business a legal entity or records its name | Your state’s business office (often the Secretary of State) | Once; ask whether yearly reports or fees apply |
| Contractor or trade license | Permission to do a certain kind of work | A state licensing board, and for some trades a city or county | Before you take the work; renewed on a schedule |
| Local business license | Permission to operate in a city or county | The city or county | Before you work there |
| Building permit | Permission for one specific project | The local building department | Before each project that needs one |
| Insurance | Pays for covered losses, injuries and claims | An insurance company, through an agent | Before work starts; renewed on the policy’s term |
| Bond | A guarantee for the benefit of your customer (in California, also your workers) | A surety company | When a license or a contract requires one |
Registration doesn’t let you do the work, a license doesn’t cover a specific project, and insurance isn’t a bond. Treat each row as its own item to check. The setup roadmap covers registration and the other setup steps.
Where to look, in what order
The SBA says requirements and fees vary based on your business activities, location and government rules, and lists construction and plumbing among the activities commonly regulated at the local level. It adds: “Local governments determine registration, licensing, and permitting requirements.” So work from the state down to the job:
- Your state’s contractor licensing board. Search “[your state] contractor license board” and use the site that ends in .gov. Check whether your trade is licensed by a separate board, and search under your trade’s name too.
- Your state’s business registration office, for the business itself.
- Each city and county on your service list, for local business licenses.
- The building department in each of those places, for project permits.
- A licensed insurance agent, for coverage, and a surety company or agent, if a bond is required.
Questions to ask the licensing board
Call or email, and write down who answered and when:
- Does the work I plan to do need a state license? Under which classification?
- Is there a job-size limit, in dollars or scope, below which no license is needed?
- What do I need to apply: an exam, proof of experience, a business registration?
- Does the license require a bond? How much, and who can claim on it?
- Do you require proof of insurance? Which kinds and how much?
- Can I bid, advertise or sign contracts before the license is issued?
- Do I need my own license to work as a sub under a licensed contractor?
- How long does approval usually take, and what does it cost?
- How often do I renew, and is there continuing education?
- If I hire someone, do they need their own license or registration, and does my bond or insurance requirement change?
Questions to ask your city and county
For every place on your service list:
- Do I need a local business license to work here, even if my business is based elsewhere?
- Do contractors have to register with the building department before pulling permits?
- Which of the jobs I do need a permit? Is there a size limit below which they don’t?
- What does a permit for a typical job of mine cost, and how long from application to approval?
- How many inspections does that kind of job need, and how far ahead do I book them?
- On a homeowner’s job, who pulls the permit? Can a permit pulled by the owner cover work I’m paid to do? Ask the building department before you agree to it.
Insurance: what to ask an agent
Insurance doesn’t come from a board. It comes from an insurer, and what you need depends on your trade and your contracts. The SBA lists general liability insurance, which covers financial loss from bodily injury and property damage, as a common type for any business. It also says the federal government requires every business with employees to have workers’ compensation, unemployment and disability insurance, and that laws requiring insurance vary by state. Its advice for buying: assess your risks, find a reputable licensed agent, and shop around. Its list of six common types is a useful starting point for the conversation: general liability, product liability, professional liability, commercial property, home-based business insurance, and a business owner’s policy that bundles common coverage.
Take the one-sentence description from your business plan to the agent and ask:
- Which of the SBA’s six types, plus commercial auto and tool coverage, does a business like mine need, and why each one?
- What limits do the customers and general contractors I’ll work for typically ask for?
- Can you add a customer as an additional insured when a contract asks for it, and what does that cost?
- Do I need workers’ compensation on myself if I have no employees?
- Does my policy cover my tools and my vehicle while I’m working, or do I need separate coverage?
- What does the policy exclude for my trade?
- If I hire someone, even part-time, what do I need to add?
- When a customer asks for proof of insurance, how quickly can you send a certificate?
Get quotes from more than one agent, and compare what each policy covers, not only the price.
Bonds: license bonds and contract bonds
A bond is a guarantee, issued by a surety company, for the benefit of someone else, such as your customer. It doesn’t protect your business the way insurance does. Before you buy one, ask the surety agent: if you pay a claim on my bond, do I have to pay you back? Contractors run into two kinds:
License bonds. Some states require one to get or keep a contractor license. California is one example: its licensing board says “the bond must be in the amount of $25,000” and that it is filed for the benefit of consumers who may be damaged as a result of defective construction. The board’s bond basics page adds that homeowners can file claims against it, and so can employees damaged by a contractor’s failure to pay wages. Your state’s amount and rules may be different, or there may be no license bond at all; the licensing board will tell you.
Contract bonds. Some jobs require a bond as part of the contract. The SBA says many public and private contracts require surety bonds, and describes the main types:
| Bond | What it ensures (SBA) |
|---|---|
| Bid bond | Full payment and performance bonding from the contract bidder |
| Payment bond | Full payment to the suppliers and subcontractors |
| Performance bond | Full completion of a contract by the small business |
If a contract asks for one, ask a surety agent what it takes to qualify before you bid.
Example: a remodeler’s business and project checks
A remodeler starting out checks two levels. This shows the method, not the rules in any state.
Once, for the business:
| Requirement | Who to ask | Status |
|---|---|---|
| State license for remodeling work | State licensing board | Asked about the job-size limit; waiting for answer |
| License bond | State licensing board | Required with the license; quote requested |
| General liability insurance | Insurance agent | Two quotes in; comparing coverage |
| Business license in the home city | City clerk | Applied |
For each project, before the estimate goes out:
| Question | Kitchen remodel example |
|---|---|
| Does any part of this job need a permit? | Asked the building department about the new electrical circuit and moving the sink |
| Does any part need a separately licensed trade? | Asked the board whether the electrical and plumbing work need licensed subs |
| Who pulls the permit and books inspections? | Agreed with the homeowner in the estimate |
| Does the schedule allow for inspections? | Added inspection days to the timeline |
The project checks go into the estimate, so the price and the schedule already include them.
Keep a requirements record
Write every answer down, with the date and the cost. One row per requirement:
| Place | Requirement | Issuing office | Official link | Question asked | Answer | Cost | Checked on | Next action or renewal |
|---|---|---|---|---|---|---|---|---|
| State | Trade license | Licensing board | (.gov link) | Job-size limit for my work? | ||||
| State | License bond | Licensing board, then a surety | (.gov link) | Required? How much? | ||||
| City | Business license | City clerk | (.gov link) | Needed if based elsewhere? | ||||
| City | Building permits | Building department | (.gov link) | Which of my jobs need one? Cost and timing? | ||||
| Business | General liability insurance | Insurance agent | n/a | Limits my customers ask for? |
The cost column goes straight into your startup budget.
Leave the answer blank until an official source gives it. A checklist, this one included, can’t tell you that you’re allowed to do the work; only the issuing office can.
Your next action
This week:
- Find your state’s licensing board on its .gov site, and the licensing pages of every city and county on your service list.
- Copy the questions above into your requirements record and send them.
- Ask at least two insurance agents for quotes, with the agent questions above.
- Mark every requirement you haven’t confirmed as open, and give each one a date to follow up.
- Add every fee, premium and bond cost to your startup budget.
FAQ
Do I need a contractor license?
It depends on your state, your trade and the size of the jobs you take, and some cities and counties have their own rules. Ask your state’s licensing board, using the questions above, and check each city and county where you’ll work.
What is a contractor license bond?
A guarantee, issued by a surety company, that some states require as a condition of a contractor license. In California, for example, the licensing board requires a $25,000 bond filed for the benefit of consumers, and homeowners and unpaid employees can file claims against it. Your licensing board will tell you whether your state requires one and how much.
Is a bond the same as insurance?
No. A license bond is filed for the benefit of your customers (in California, also your workers). Insurance protects your business against covered losses and claims. You may need both. Ask your insurance agent and a surety agent to explain how they apply to you.
Does a business license let me do construction work?
Not by itself. A business registration or local business license lets the business exist or operate in a place. Permission to do the trade work, where it’s required, is a separate license, and each project may still need a permit.
Run the paperwork side in MotionOps
Once you’re licensed and insured, the paperwork moves to the jobs. MotionOps is field service software for contractors with On-Site Estimates, Field Proposals, Job Waivers and Invoicing & Payments, so the agreements and records for each job stay together.
See all features or compare plans. When you’re ready for your first jobs, book a MotionOps demo.
Contractor Starter Hub: Start Your Contracting Business, lesson 3 of 5
- Previous lesson: How to Start a Construction Business: A Step-by-Step Setup Roadmap
- Next lesson: Separating Business and Personal Finances: A Money Setup for New Contractors
- Download for this lesson: Local Requirements Research Worksheet (PDF)
- All five lessons: Start Your Contracting Business
