Many people choose to operate small home businesses without getting a business license, because technically it is possible to do so in some cases without penalty. But if the business falls under special state requirements and regulations or you need to bring the small company public with common business services, like banking, you are going to have to apply for a license.
There are many different types of business licenses. For example, there are special licenses for plumbers, nail salon owners, practicing doctors, and food businesses. The type of license you would need for your business depends on the industry that you are in and would have to be determined by your state or local commerce office. Each license has its own set of special requirements, which could include exams, certifications, insurance, and fees.
Serving the Public
If you are participating in any type of business that involves interaction with the public, where the product or service can potentially harm or put the public in danger, you have to have a license. This is most commonly the case with food businesses, because there are always concerns about where the food is sourced from, how food is cooked, and the cleanliness of kitchens. Another situation where you would definitely need a business license is when you are performing services for customers (like dental work) or opening a factory that could affect the environment. The state and local government needs to monitor these types of business and enforce regulations to assure public safety.
Opening a Bank Account
When you go into a bank to open a business checking or savings account, you will be asked for identification and a business license or permit from the state. The bank usually needs to verify that you are in fact a legitimate business before opening an account in a company name.
Applying for Business Financing
When you apply for a business loan you need to have a registered business license or permit with the state. This gives the lender more assurance that you are a serious business and not a fly-by-night operation that will run off with the money. This is also the case when you are looking for angel investors--people to provide funding for your business.
In some cases you may be able to simply register your business name, assuming that your business does not have specific permit or licensing requirements. When you have a fictitious name (also called a DBA---"doing business as" name) filing as a sole proprietorship, the business name is made to be officially synonymous with your personal name.