North American Industrial Classification System codes — or “NAICS codes” as they are commonly known— are six-digit codes that classify businesses into a specific business sector. Each digit signifies a different classification for your business. The first two digits of the NAICS code signifies the major group or sector of an establishment. There are 20 different industry sectors that these two digits define. The last four digits are used to further classify subsectors, industry groups, industry types, and industry by nation.
The NAICS system was developed for government agencies to be able to track economic activity.
How to Do a NAICS Lookup
The best place to start a NAICS lookup search is at the Census Bureau’s website at Census.gov/naics. There you can use online lookup tools or you can even download the entire NAICS manual. There is also an extensive FAQs section that may answer your questions about these codes.
On the website you can use the 2022 NAICS search field to search for NAICS codes by keyword (e.g., publishing or transportation). Once you identify the appropriate major group or sector, you can drill down into more specific categories until you find the 6-digit code that is most accurate for your business.
If you’ve researched codes on that site and you are still not sure what NAICS code is most accurate for your business, you can email the Census Bureau at firstname.lastname@example.org for assistance. If you do, be sure to include your phone number so they can call you to ask questions if necessary.
The NAICS Association website also offers free search and drill-down tools, but keep in mind that it is a business website, and is not operated by the government.
What is the Difference Between a NAICS Code and SIC Code?
NAICS was adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It allows for statistical comparisons among firms in multiple countries within North America, including Mexico and Canada. You may see SIC codes used by some local agencies or they may appear on business credit reports, but the federal government no longer uses them.
Your business credit report may list both a NAICS and SIC code. They should be broadly similar, though the NAICS code may drill down into more detail.
Can You Have More Than One Primary NAICS Code?
The federal government will only use one NAICS code per establishment for statistical purposes, but other systems such as SAM, which is used for government contracting and awards, may allow for more than one NAICS code. Within SAM, most businesses will have a primary NAICS code but may have multiple secondary NAICS codes if the business offers more than one product or service.
It’s also important to understand that some businesses may have more than one NAICS code due to the fact that they have more than one establishment, each with somewhat different activities.
There are two main terms used to describe businesses tracked in this system: establishments and enterprises. A business establishment typically refers to a single physical location where business is conducted or where services or industrial operations are performed (e.g., a bowling alley, coffee shop, factory or farm). When an establishment has one or more locations that are more than 50 percent owned by the same entity then it can qualify as an enterprise. A NAICS code will be assigned a NAICS code, based on the primary business activity.
The U.S. Census Bureau uses revenues or value of shipments to determine the primary business activity of the establishment.
How Are NAICS Codes Used?
Here are a few of the ways your NAICS code can affect your business:
1. Qualify as a Small Business
The U.S. Small Business Administration sets size standards for what is considered a “small” business. The size of your business will determine whether or not you qualify for certain federal contracting opportunities.
Each industry, classified by its NAICS code, has a particular size standard. Size standards are usually measured by average annual receipts or average number of employees.
For example, if your business is a Soybean farm (NAICS code 111110), you are only considered “small” if your gross annual revenue is less than $750,000. However, if you own a residential remodeling business (236118), your gross annual revenue can be up to $36.5M and you will still be a small business. A footwear manufacturer (316210) is small if they have less than 1,000 employees, but all wholesale traders (sector 42) are only small if they have less than 100 employees.
Here’s how a wrong NAICS code might affect you here: some similar NAICS codes have wildly different size standards. For example, a Recreational Goods Rental business (532292) has a cap of $7.5M, whereas a Truck, Utility Trailer, and RV (Recreational Vehicle) Rental and Leasing business (532120) has a $38.5M cap.
If your current NAICS code disqualifies you from federal, local, or even private small business contracts when you could be bidding on contracts under another industry classification that is appropriate and accurate for the product or services you sell, you may want to consider changing your NAICS code.
2. Qualify for Small Business Financing
Certain industries that are considered extremely high risk—such as pawn shops, political campaigns and gambling activities—will raise a huge red flag for lenders. Banks and alternative lenders will be looking at the NAICS codes of potential business borrowers to determine if they fall into one of these high risk industries. In fact, your NAICS code could make or break your ability to secure a small business loan from your best lending partner!
Let’s look at an example of how this might affect you: Local freight hauling was deemed one of the safest new business industries. A local freight hauling business would likely fall under the NAICS subsector 484 for Truck Transportation. One of the riskiest industries to start a business is passenger transportation, which would likely fall under NAICS subsector 485, or Ground Passenger Transportation. Although these two subsectors are so close in number, they have such different risk levels—one number could be the difference between a potential lender considering your application or rejecting it from the get-go. When applying for a loan, make sure lenders have the right NAICS code for your business.
3. Tax Benefits
Federal and state agencies may use NAICS codes for tax purposes, and your state Tax Department may use them to collect and analyze data related to taxes and to create reports regarding taxation issues. Your state government may also use NAICS codes to offer tax incentives to certain industries. Under the wrong NAICS code, you may be missing out on these incentives. Your accounting professional can provide you with more information on these opportunities.
How to Change Your NAICS Code
NAICS codes may seem trivial, but if you’re interested in government contracts, financing options, or certain tax incentives, they will be important for your business. Your business credit reports may list your company’s NAICS code and/or SIC codes. You can check them in your Nav account. If your business credit report lists an incorrect SIC or NAICS code, you will need to provide the correct NAICS code to the credit bureau that is reporting the wrong information.
Nav can also help you make the most of business financing opportunities by matching you to lenders, business credit cards and more, based on your business data and qualifications.