At some point in time in your business, you might find yourself needing a loan. Maybe you’re hoping to expand, maybe you just need a little wiggle room to get you through a seasonal lull, or maybe you’re just starting out and need start-up capital. It’s pretty common for small businesses to apply for funding. In fact, 34% of small business in 2021 applied for financial help—the top three reasons being business expansion, equipment purchases, and marketing expenses.
Whatever the reason, a bank or investor is going to want to make sure that you’re a legit business. The best way to prove this to them? A certificate of good standing. We know there are so many administrative hoops to navigate as a business but this is one you’re going to want to jump through. But, how do you get a certificate of good standing?
In this article, we explain what a certificate of good standing is, who needs one, why you need one, and the steps to get one. Basically, everything you need to know to apply for a certificate of good standing. You’re gonna want to read on.
What is a certificate of good standing?
A certificate of good standing is an official document issued by a state government office or agency. Its main goal is to validate that a business entity—a corporation or LLC—has met all statutory requirements, paid its taxes, and is legally authorized to conduct business transactions in the state. A certificate of good standing has a bunch of different names depending on the state in which it’s issued. It can sometimes be referred to as:
- Letter of good standing
- Certificate of existence
- Good standing certificate
- Certificate of authentication
- Certificate of status
- Certificate of authorization
No matter the name, it sends a message that your business is the real deal and that you’re compliant with state laws.
Who can get a certificate of good standing?
If you’re a registered business entity, you can get a certificate of good standing. This is because you actually have to register with your state. Once you do, the government tracks your compliance with state regulations and can keep track of whether your business is active or not.
That typically means the following entities can apply for a certificate:
- Limited liability companies (LLCs)
- Partnerships
- Limited partnerships (LP)
- Limited liability partnerships (LLPs)
- Limited liability limited partnerships (LLLPs)
- Corporations
Banks may sometimes specifically ask for a ‘bank letter of good standing’, which is essentially the same as this certificate.
Do I need a certificate of good standing?
You don’t need a certificate of good standing out of the gate, but at some point in time you’re going to want one if you’ve dreams of growing your business.
If you’re wondering whether you need a certificate of good standing, consider these common scenarios.
Here are some reasons why you’re going to want a certificate of good standing for your business:
1. Opening a business account
You need a business bank account if you’ve got employees on payroll and business expenses that need to get paid. Banks want to make sure that a business is who they say they are before allowing them to become a customer. Having that certificate of good standing can immediately legitimize you in a bank’s eyes.
2. Applying for a business loan
Lenders, investors and banks want to be really sure that you don’t have a bunch of outstanding debt in terms of other loans or taxes before considering your business for a loan. They need to protect their investment and someone who has a history of paying their bills and is financially sound is more likely to continue that trend.
3. Registering to do business in a different state
One day soon, you may find your business is booming. If you’ve got ambitions of expanding your business out of state—or out of country—someday, you’re going to need that certificate of good standing to submit to the new Secretary of State’s office.
4. Buying property or larger equipment for your business
If you plan on investing in property or larger equipment—let’s say work trucks for a moving company—a seller is going to need proof that your business is real and that it has the financial resources to make these large purchases.
5. Receiving government contracts
When a government outsources to smaller businesses, they need to do their due diligence that the business they’re offering a contract to isn’t going to cut and run with their funds. For example, if a construction company bids for a government contract to build housing, having a certificate of good standing is a non-negotiable.
6. Maintaining a trust factor
In its simplest form, a certificate of good standing is a testament that your business is trustworthy. It means you’re financially responsible and compliant with state laws. You get that seal of approval from your state, helping clients and investors trust you.
We’ve looked at the ‘who’ and the ‘when’, now let’s dive into how to get a certificate of good standing.
How to get a certificate of good standing
It isn’t difficult to get a certificate of good standing, but there are some key steps you need to follow to make it easy on you.
Step 1: Are you compliant and up to date?
Before applying, make sure your business is up to date with all compliance requirements. Have you filed your annual reports? Paid your taxes? Fulfilled any specific state obligations for your particular business? You want to apply with a clean slate. Being behind on any of these items is just going to delay the process.
Step 2: Get all of the required information together
Time to hunt down all of the information you need for the application. This can include the legal name of the business, identification numbers—like the Employer Identification Number or EIN, the date of formation or registration, and details about the registered agent. Each state is going to have its own requirements, which leads us to the next step.
Step 3: Research state-specific procedures
Different states have different procedures for getting a certificate of good standing. It could be the Secretary of State’s office, a Department of Revenue, or some other government agency. Visit the official website of the state’s Secretary of State or other agency to figure out the specific requirements and guidelines.
Some states may have online application portals, others may require applications to be submitted by mail, in person, or through an authorized service provider. Knowing this information ahead of time is going to save you a lot of time and headaches.
Step 4: Complete the application form
Now is the time to pour yourself a tea and hunker down to fill out the application form. This can be tedious but it’s important. Any errors or missing information means you may have to start over or wait longer than you would like.
Step 5: Pay any required fees
Most states charge a fee for issuing a certificate of good standing. Online portal payments will be pretty easy. Make sure you’ve got the correct amount if you’re mailing in a money order or check.
Step 6: Submit the application
Once the application is complete, double-checking all of the information and fees, submit it to the appropriate state authority however they specify—online, by mail, or in person. Online forms are easiest but make sure you don’t rush through them. Upload the documents you need carefully and make a secure payment. If you’re sending it through the mail, or standing in a long government building line, to submit your forms, triple-check that you’ve got all documents in the envelope or in your hand.
Step 7: Time to wait
This is when the waiting game begins. Depending on how you submitted, your processing time could range from a few days to a few weeks. Keep an eye on your email—or regular mail—for your certificate of good standing to come in.
Again, how to get a certificate of good standing for your business isn’t a very complicated process, it’s just a process you want to get right. Once it’s done, it opens up opportunities for you to expand your business, stay compliant, and have that extra element of trust on your side.
If you aren’t in dire need of a certificate of good standing, now is the time to set yourself up for success when you are ready to take that step. Use a payroll software that helps you keep track of taxes owed—and keeps an official record of everything. You can also brush up on your state laws and build systems to be on top of it.
If you are ready to go, now you have the steps you need to take to check this big item off of your business to-do list.
Homebase can help you stay compliant in your state
With a payroll tool that keeps you on top of your taxes owed and HR support to help with compliance, Homebase can make sure you are ready to apply for a certificate of good standing.
How to get a certificate of good standing FAQs
As a business owner, do I need a certificate of good standing?
You should have a certificate of good standing for your business if you’re registered and you’re hoping to get a business loan, open new locations, and want to establish trust. No business needs a certificate of good standing, but you’re going to want one.
How long are certificates of good standing valid?
Certificates of good standing are typically considered valid for a specific duration, but that period can vary based on the state or jurisdiction that issued the certificate. In many cases, they’re valid for a specific timeframe from the date of issue, usually ranging from 30 to 90 days.
Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.
