If you’ve filled out an application for a small business loan or financing, you may have been asked to provide information about the industry your business operates in, or even to list your SIC or NAICS codes. And you may have wondered why this information is requested by lenders, or how it would affect whether your application is approved. .
Here we explain how industry codes, like SIC or NAICS codes, can affect where and how much funding your business gets.
Why NAICS Codes Are Important to Business Financing
First, it’s important to establish what industry codes like SIC and NAICS codes mean.
NAICS is an abbreviation for the North American Industry Classification System, a numerical system developed to track economic activity in North America. It replaced the older Standard Industrial Code (SIC) system in 1997.
Essential for government reporting, market research, and economic analysis, the NAICS code is crucial for businesses in identifying their sector, especially when starting up or filling out government documents. Business owners can find their specific NAICS code through the official website or by consulting with government agencies and industry experts.
NAICS codes are also helpful if your business plans to pursue government contracting. To compete for federal contracts, your business must register at SAM.gov. There you’ll also be able to represent if your business is eligible for contracts under an SBA contracting program because it is disadvantaged, women owned, veteran owned, or located in an underutilized area.
Among other requirements (such as size standards), you will match your products and services to a NAICS code. At USASpending.gov you can see how much the US government has spent by NAICS code (among other statistics).
The IRS also requests NAICS codes on certain forms. You can find the list of industry codes here.
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What NAICS Code Should I Use for My Business?
You should use the NAICS code for the industry that best represents the main source of revenue for your business. The SBA notes that you can have a primary NAICS code and secondary NAICS codes, but in practical terms, it’s not typical for loan applications to offer the ability to share more than one industry code.
The comprehensive guide to NAICS code is published by the U.S. Census Bureau, a federal government agency. You can download the most recent version here, or use online search tools. However, the government does not assign a NAICS code when you start a business, so you’ll want to identify the one that is the best match for your type of business.
NAICS codes categorize businesses based on their main economic activity, using a hierarchical code structure. Starting with broad sectors indicated by the first two digits, it gets more specific with each additional digit, detailing subsectors, industry groups, and individual industries.
For example, let’s look at restaurants.
- Sector: The first two digits represent the broadest level of classification, identifying the major economic sectors (e.g., Construction, Information, Arts Entertainment & Recreation, Retail Trade, etc.). In this example we will choose 72 for Accommodation and Food Services.
- Subsector: The third digit further divides the sector into subsectors that share similar economic characteristics (e.g., 2 for Food Services and Drinking Places).
- Industry group: The fourth digit identifies specific industry groups within the subsector (e.g., 5 as the fourth digit, or 7225 for Restaurants and Other Eating Places).
- Industry: The fifth digit distinguishes individual industries within the industry group (e.g., 1 or 72251, also for Restaurants & Other Eating Places).
- National industry: In some cases, a sixth digit may be added to provide additional specificity at the national level when applicable. (e.g., 1 or 722511 for Full Service Restaurants.)
NAICS codes aren’t perfect. For example, a deep dive in The Washington Post pointed out that there are no NAICS codes for many types of jobs in the creator economy, such as YouToobers or social media influencers.
You’ll need to choose the one that most closely represents your main type of business activity. If you are having trouble deciding on the right NAICS code for your industry, you can email the US Department of Census at email@example.com.
Are NAICS Codes Important to Business Loans?
Lenders prefer to lend into certain industries but not others. SIC and NAICS codes are one way they identify the industries to which they will lend.
There’s no “best NAICS code for credit” list, but if your business falls into a lender’s high risk category, you may find it harder to get business funding, or you may get approved for smaller loan amounts or credit limits. (We will talk about high-risk NAICS codes in a moment.)
Lenders breakdown NAICS into multiple different categories:
- Preferred Industry (expedited approval and/or better financing terms)
- Normal Risk Industries (normal underwriting)
- High Risk Industries (additional documentation may be required)
- Prohibited Industries (will not lend)
It’s also worth noting that even businesses in what may be considered low-risk NAICS codes categories may face hurdles getting certain types of funding. Some lenders, especially traditional lenders like banks, may only be able to lend a certain total amount within a particular industry sector. Otherwise, they may be overexposed in a particular industry, and if that industry faces severe financial challenges, the financial institution could face significant losses.
So even if the bank generally likes to lend to a particular industry— say healthcare, for example— if they’ve already reached their lending threshold for that industry, your loan application could get rejected even though you meet other approval criteria.
And remember the top factors many small business lenders consider when evaluating small business loan applications are:
- Credit scores,
- Revenue/income, and/or
- Time in business
Are Some NAICS Codes Considered Less Risky Than Others?
Lenders prefer to lend into certain industries but not others. SIC and NAICS codes are one way they identify the industries to which they will lend. Almost every lender will have its own list of industries to which they prefer to lend (preferred industries) and ones to which they will not lend (prohibited or restricted industries). Lenders may or may not make that information public.
Since each lender is different, there’s no single list of high-risk NAICS codes that every lender uses. However, there are some industries that frequently appear on lists of higher risk businesses:
- Adult entertainment
- Auto dealers
- Bail bonds
- Bowling alleys
- Cannabis businesses
- Collection agencies
- Credit counseling services
- Dance studios
- Direct marketing/MLMs
- Gas stations
- General contracting
- Hotels and motels
- Law firms
- Lending businesses
- Night clubs
- Real estate agents
- Real estate investors
- Travel agencies
Does that mean you can’t get financing if your business is in one of those industries? Not necessarily. There may be lenders that cater to that industry, for example.
And business credit cards— a popular source of short-term financing for startups as well as established businesses—are generally available to business owners with few restrictions.
Businesses in high-risk industries may also find it difficult to get a merchant services account to accept credit or debit card payments from customers.
Are NAICS Codes Important to Business Credit?
Business credit reports may list your business NAICS and/or SIC code. Check your business credit report to see if yours is accurate. Keep in mind that business credit scores may in part depend on the industry in which your business operates. Your business can be compared to other businesses in that industry. If your NAICS code is wrong, it could affect your overall business credit.
Additionally, some lenders buy marketing lists from credit bureaus. If your industry code is wrong, you may not get the offers you would get otherwise.
When you are establishing business credit, you’ll want to make sure your business credit reports accurately reflect your industry code.
What Is the Best NAICS Code for a Small Business?
There’s no single best NAICS code for any business. You should choose one that best fits the type of business you operate.
However, here are some types of businesses that many lenders consider less risky, and are more popular for funding.
General automotive repair
Tire retreading and repair
Nursing care facilities
Home healthcare services
Medical equipment and supplies
Plumbing, heating, and AC contractors
Excavation, wrecking, and demolition companies
Architectural and engineering services
Materials and machine parts
Consumables (food beverage and tobacco)
Food product machinery
Medical devices, instruments, and supplies
Each lender has its own policies, so don’t assume that just because one lender doesn’t lend to a business like yours that none will. While certain industries, like cannabis or adult entertainment, are often hard to fund, others may be preferred by some lenders and not others.
For example, one lender puts insurance agencies on its restricted list and requires more documentation before considering a loan. Another puts insurance agencies on its preferred industry list.
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What Is the Best NAICS Code for Construction?
Construction falls under sector 23, construction. The overview for this sector says, in part:
“The Construction sector comprises establishments primarily engaged in the construction of buildings or engineering projects (e.g., highways and utility systems). Establishments primarily engaged in the preparation of sites for new construction and establishments primarily engaged in subdividing land for sale as building sites also are included in this sector. Construction work done may include new work, additions, alterations, or maintenance and repairs…”
23611 Residential Building Construction
236115 New Single-Family Housing Construction (except For-Sale Builders)
236116 New Multifamily Housing Construction (except For-Sale Builders)
236118 Residential Remodelers
236210 Industrial Building Construction
237110 Water and Sewer Line and Related Structures Construction
238110 Poured Concrete Foundation and Structure Contractors
238130 Framing Contractors
238140 Masonry Contractors
What Is the NAICS for Restaurants?
As mentioned earlier, restaurants fall under sector 72, Accommodation and Food Services, with the short description: “Activities of this sector are providing customers with lodging and/or preparing meals, snacks, and beverages for immediate consumption.” Popular NAICS codes for restaurants include:
722440 Drinking places (alcoholic beverages)
722511 Full-service restaurants
722513 Limited-service restaurants
722514 Cafeterias and buffets
722515 Snack and non-alcoholic beverage bars
What Is the NAICS Code for Car Dealerships?
Automotive dealers fall under sector 44, retail trade, subsector 4411 Automobile Dealers. The description for this subsector notes, “this industry group comprises establishments primarily engaged in retailing new and used automobiles and light trucks, such as sport utility vehicles, and passenger and cargo vans.”
4411 Automobile Dealers
44111 New Car Dealers
441110 New Car Dealers
44112 Used Car Dealers
441120 Used Car Dealers
Speciality motor vehicle dealers also have their own codes.
4412 Other Motor Vehicle Dealers
44121 Recreational Vehicle Dealers
441210 Recreational Vehicle Dealers
44122 Motorcycle, Boat, and Other Motor Vehicle Dealers
441222 Boat Dealers
441227 Motorcycle, ATV, and All Other Motor Vehicle Dealers
What NAICS Code Is the Best for a Cleaning Business?
Cleaning services are likely to fall under Sector 56–Administrative and Support and Waste Management and Remediation Services, and more specifically subsector 561 Administrative and Support Services. Here are several relevant NAICS codes:
5617 Services to Buildings and Dwellings
56172 Janitorial Services
561720 Janitorial Services
56173 Landscaping Services
561730 Landscaping Services
56174 Carpet and Upholstery Cleaning Services
561740 Carpet and Upholstery Cleaning Services
56179 Other Services to Buildings and Dwellings
561790 Other Services to Buildings and Dwellings
There are other codes that will be more appropriate for speciality cleaning services (like coal mining cleaning, or sewer system cleaning and others.)
What NAICS Code Is the Best for a Consultant?
The broadest category for consultants is in sector Sector 54–Professional, Scientific, and Technical Services.
5416 Management, Scientific, and Technical Consulting Services
54161 Management Consulting Services
541611 Administrative Management and General Management Consulting Services 541612 Human Resources Consulting Services
541613 Marketing Consulting Services
541614 Process, Physical Distribution, and Logistics Consulting Services
541618 Other Management Consulting Services
54162 Environmental Consulting Services
541620 Environmental Consulting Services
54169 Other Scientific and Technical Consulting Services
541690 Other Scientific and Technical Consulting Services
However there may be other consulting services categories that may be more appropriate in certain circumstances. For example, a business that consults on forest restoration would likely fall under NAICS code 115310 Support Activities for Forestry.
Bottom Line NAICS Code for Funding
It is important to find the right NAICS code for your business, and make sure it’s reflected accurately on your business credit reports. Review the NAICS code manual to identify the correct code for your business, and check your business credit to make sure it’s accurate.
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This article was originally written on December 21, 2023.
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