Buying a Business that Requires Contractor's License (C36) in California

searcher profile

May 09, 2024

by a searcher from University of California, Los Angeles in Orange County, CA, USA

I've seen plenty of plumbing businesses go up for sale, but they all require a C36 license. In California, it takes 4 years of journeyman-level experience to obtain the C36 license (as with most contractor's licenses), but the SBA only allows an RMO for###-###-#### years.

Are there any ways around this? Would I, as the majority owner/operator, require a C36 license, or can I have someone with a minority ownership (<1%) cover this state requirement?

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
The SBA and SBA lenders want to be sure you have a way to maintain the license post closing and usually they would like to see a plan for that to stay in place long-term. In California it is always more difficult than in other states because they have much stricter licensing requirements. There are several ways we have worked around this issue. Below are three of the most used options I have seen.

Option 1: Have a partner that meets the licensing requirements as an owner. They could be a minority owner, but please be aware the lender might want them to guarantee the loan, even on a limited basis, to be sure there is support for that license staying in place.

Option 2: If there are multiple key employees in the business that can meet the licensing requirements, then there may be an argument for moving forward because those employees are already available.

Option 3: Do a partial business acquisition and have the seller stay on for a percentage of ownership. If you keep the seller's ownership below 20%, then they would not be required to guarantee based on the SBA rules. However, some lenders may want the seller to sign a limited guarantee to support staying involved with that license.

No matter what option you employ, you will want to have a plan in place to ensure you can secure maintain the license long-term. Also, whatever option you use I am making the assumption having someone involved like suggested above meets the CA licensing requirements. I am not an expert on the licensing requirements in CA for all businesses, so be sure to check with the State or your attorney about the specifics on what are required for your business.

If you have any additional questions, you can reach me here or directly at redacted Good luck.
commentor profile
Reply by a professional
from University of Notre Dame in New York, NY, USA
I've done a handful of these deals in CA that require a contractor's license - I'll echo a lot of what Brad said. It takes creative deal structuring and typically a requirement of the Seller to stay on in some form or fashion (either as the RMO, which requires a bond if they don't retain 20+% ownership, or an RME). Rollover equity/partial business acquisition can incentivize the Seller to do that. It's also very important whether the Seller holds the license personally or the LLC is the license holder b/c licenses may get cancelled upon a change of control. Happy to chat more about it - DM me or shoot me an email redacted
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