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Why Your NAICS Codes May Impact Your Ability to Access a Business Loan

Small Business Owners Guide to IRS Business Codes and NAICS Codes for Financing Success in 2024 by Gerri Detweiler April 6, 2024


Starting a small business exposes you to a whole new lexicon of acronyms from ROI (return on investment) to POS (point of sale systems). One that will no doubt be confusing the first time you come across is “NAICS codes”.  


Ignore it at your own expense, because the wrong NAICS code may make it harder for your business to get funding. Here’s why. 


What are NAICS Codes?

NAICS codes refer to North American Industry Classification System codes. These codes are the more updated version of Standard Industrial Classification (SIC) codes which were created as a way for the government to track business economic activity. 

Developed by the United States, Canada, and Mexico, these codes help track economic activity in North America. NAICS was adopted to replace the SIC system in 1997. 

You choose your NAICS code based on your primary business activity, and you want to choose the correct code for several reasons, including small business financing, as we’ll explain in a moment. 


What are IRS Business Codes?

The IRS uses NAICS codes as IRS Business Codes (or Business Activity codes)  in several circumstances. For example:


  • Sole proprietors, independent contractors and freelancers who file Schedule C must indicate their business code on Schedule C, Line B. 

  • S Corporations file form 1120-S and include their business code in Item B

  • LLCs may file as a disregarded entity using Schedule C or elect to be taxed as a corporation, so the form they file will depend on their structure and elections. 


Note that a NAICS code is not required when you request an Employer Identification Number (EIN) and it is not a substitute for one, either. (An EIN is the equivalent of a Social Security number, but for businesses.) 


At the end of this article we have listed industries and subsectors in alphabetical order, as provided by the Bureau of Labor Statistics. 


Why are Business Codes Important for Small Business Financing?

Virtually all small business lenders and financing companies prefer to lend to businesses in certain industries and do not want to lend to businesses in others, which they may refer to as “restricted industries.” This may be for any number of reasons, but it usually has to do with the risk they are willing to take or legal restrictions on certain types of financing. 

Many small business owners struggle to get financing, and may not realize their NAICS code may affect whether they get a loan.


If your NAICS code indicates your business is in what’s considered a high-risk industry, then you may have trouble getting certain types of financing. If your business is in a low-risk industry, or an industry lenders prefer, you’ll have more financing opportunities. 

That doesn’t mean you can choose any code just because you think it’s “better.” You should still choose one that reflects your primary business activity, especially when applying for financing where falsifying a credit application can have consequences down the road. 

Your NAICS (or the older SIC) code may appear on your business credit reports. Be sure to check your business credit to ensure it is accurate. (Here’s how to establish business credit if you haven’t done so.)


How to Find Your Business Code

NAICS codes can be confusing if you’re unfamiliar with industry classification. Whether you’re starting a business and need to provide one as you form a business entity, or if you want to make sure your current code is correct as you file your business tax return, or if you are applying for financing that requires a NAICS code, it doesn’t have to be complicated.  

Here’s how to choose your NAICS or business code.

While the IRS publishes a list of business codes, it may be easier to find yours using the U.S. Census site. There, you’ll see a search box with the most recent year of codes available. For example:


NAICS Census.gov
NAICS search box at Census.gov








You’ll then type in keywords (terms) that describe the primary activity of your business. For example, type in “tree removal” and you’ll get results that show the NAICS code for a tree removal business.

NAICS code
NAICS code search result for “Tree Removal services”

How to Select a Business Code


Not every keyword search will result in a perfect match that describes your primary business to a tee. Generally, you’ll just want to get as close as you can. Remember you are searching for a code that matches your principal business activity.  


If you try the search function to check your NAICS code and can’t find even a close match, first be sure to read the Census Bureau’s FAQs about NAICS codes. You can then reach out to them at Dr. NAICS (naics@census.gov) or call 1-888-75NAICS. There is no need to pay someone for a NAICS code search or a NAICS code assignment.


If you want to know more, it can be helpful to understand how these codes are structured.

NAICS codes are 6-digit codes and the organization of NAICS is as follows:


  • Sector: 2-digit code

  • Subsector: 3-digit code

  • Industry Group: 4-digit code

  • NAICS Industry: 5-digit code

  • National Industry: 6-digit code


In other words, you start with the 2-digit sector code and drill down from there. The sector codes are:

Sector

Definition/description

11

Agriculture, Forestry, Fishing and Hunting

21

Mining, Quarrying, and Oil and Gas Extraction

22

Utilities

23

Construction

31-33

Manufacturing

42

Wholesale Trade

44-45

Retail Trade

48-49

Transportation and Warehousing

51

Information

52

Finance and Insurance

53

Real Estate and Rental and Leasing

54

Professional, Scientific, and Technical Services

55

Management of Companies and Enterprises

56

Administrative and Support and Waste Management and Remediation Services

61

Educational Services

62

Health Care and Social Assistance

71

Arts, Entertainment, and Recreation

72

Accommodation and Food Services

81

Other Services (except Public Administration)

92

Public Administration



You don’t file your NAICS code with the US Census Bureau. You will only provide it if you are asked, which may be on a tax return where it asks for Business Code, or on a credit application that requests it.


Most Common Business Codes

These codes feed into the periodic Economic Census. Results were last published for 2017, and the 2022 results will start to be released in March 2024.

Because you need to find the code that most accurately represents your business activities, rather than trying to identify what’s most popular with other businesses. However, if you are in the pre-startup phase and are trying to decide what business to start, you may want to look at what types of businesses are landing the most government contracts or which businesses are most profitable by NAICS code.


Most Problematic Business Codes or Riskiest Business Codes

Some business owners want to avoid NAICS codes that identify risky businesses, but there are two problems with this:


There is no consensus on what codes indicate “high risk” businesses. Certain types of businesses— gambling, adult entertainment or CBD, for example— are generally considered high risk. But others, like real estate investing or web design, may be considered high risk by some lenders and not by others. The U.S. government does not maintain a list of high-risk NAICS codes.


You may still be able to create a lucrative business in a high-risk industry. Some see opportunities where others see flashing warning signs, and forge ahead anyway.

Still, understanding what you may be up against can be helpful just in terms of setting realistic expectations with regard to financing and other business services.

Some merchant service providers, for example, will not do business with companies that fall into high-risk categories and that may make it more difficult or expensive to accept credit cards or ACH payments. (In this case they are referred to as high-risky merchant codes and use a different numbering system than NAICS.)


Here are some examples of businesses that may be seen as higher-risk by some lenders:

NAICS code

Type of business

722410

Alcoholic beverage drinking places; bars (i.e., drinking places); brew pubs, primarily serving alcoholic beverages for immediate consumption; discotheques; nightclubs

457110457120

Gasoline stations with convenience stores and Gas stations with convenience stores

81111

General automotive repair (including automobile repair garages (except gasoline service stations), general automotive repair shops and automotive engine repair and replacement shops

441210

Motor home dealers; recreational vehicle (RV) parts and accessories stores; recreational vehicle (RV) dealers; travel trailer dealers

441310

Automotive parts and supply retailers; truck cap retailers; automotive stereo retailers; used motor vehicle parts retailers

456110

Pharmacies, drug stores, apothecaries

722511

Food service establishments primarily engaged in providing food services to patrons who order and are served while seated (i.e., waiter/waitress service) and pay after eating.

The NAICS Association (which is a private company and is not affiliated with the US Government) periodically publishes an updated list of businesses in high-risk industries you may find useful.


What to Do if Your Business Falls in a Risky Business Code Category

Again, the IRS and government agencies don’t care if your business falls into a high-risk category. There is a caveat here: certain types of businesses are not able to qualify for loans guaranteed by the US Small Business Administration (SBA). 

If you are debating about what business to start, then choosing one in a low-risk industry can be helpful. But if you are already in operation, you may need to be more creative when it comes to financing your business.For example, many businesses that can’t qualify for a small business loan use business credit cards for financing. Interest rates will be on the high side, but 0% APR credit cards can provide short-term affordable financing.


How Can Nav Help

*NAV is not an affiliate of Start.Pivot.Grow.


Nav can help your business navigate the confusing world of NAICS codes and financing in a couple of important ways:


  1. Check your business credit reports with Nav to determine what, if any, NAICS codes are listed on your business credit reports. 

  2. Then use Nav’s tools to find financing based on your qualifications. 


List of Industries by Supersector and NAICS Code 

This list of industries compiled by the U.S. Bureau of Labor Statistics arranged by NAICS code are grouped by goods-producing and service-producing industries, and then further arranged alphabetically. 


Goods-Producing Industries

  • Natural Resources and Mining

  • Agriculture, Forestry, Fishing and Hunting (NAICS 11)

  • Crop Production (NAICS 111)

  • Animal Production (NAICS 112)

  • Forestry and Logging (NAICS 113)

  • Fishing, Hunting and Trapping (NAICS 114)

  • Support Activities for Agriculture and Forestry (NAICS 115)

  • Mining, Quarrying, and Oil and Gas Extraction (NAICS 21)

  • Oil and Gas Extraction (NAICS 211)

  • Mining (except Oil and Gas) (NAICS 212)

  • Support Activities for Mining (NAICS 213)

  • Construction

  • Construction (NAICS 23)

  • Construction of Buildings (NAICS 236)

  • Heavy and Civil Engineering Construction (NAICS 237)

  • Specialty Trade Contractors (NAICS 238)

  • Manufacturing

  • Manufacturing (NAICS 31-33)

  • Food Manufacturing (NAICS 311)

  • Beverage and Tobacco Product Manufacturing (NAICS 312)

  • Textile Mills (NAICS 313)

  • Textile Product Mills (NAICS 314)

  • Apparel Manufacturing (NAICS 315)

  • Leather and Allied Product Manufacturing (NAICS 316)

  • Wood Product Manufacturing (NAICS 321)

  • Paper Manufacturing (NAICS 322)

  • Printing and Related Support Activities (NAICS 323)

  • Petroleum and Coal Products Manufacturing (NAICS 324)

  • Chemical Manufacturing (NAICS 325)

  • Plastics and Rubber Products Manufacturing (NAICS 326)

  • Nonmetallic Mineral Product Manufacturing (NAICS 327)

  • Primary Metal Manufacturing (NAICS 331)

  • Fabricated Metal Product Manufacturing (NAICS 332)

  • Machinery Manufacturing (NAICS 333)

  • Computer and Electronic Product Manufacturing (NAICS 334)

  • Electrical Equipment, Appliance, and Component Manufacturing (NAICS 335)

  • Transportation Equipment Manufacturing (NAICS 336)

  • Furniture and Related Product Manufacturing (NAICS 337)

  • Miscellaneous Manufacturing (NAICS 339)


Service-Providing Industries

  • Trade, Transportation, and Utilities

  • Wholesale Trade (NAICS 42)

  • Merchant Wholesalers, Durable Goods (NAICS 423)

  • Merchant Wholesalers, Nondurable Goods (NAICS 424)

  • Wholesale Electronic Markets and Agents and Brokers (NAICS 425)

  • Retail Trade (NAICS 44-45)

  • Motor Vehicle and Parts Dealers (NAICS 441)

  • Furniture and Home Furnishings Stores (NAICS 442)

  • Electronics and Appliance Stores (NAICS 443)

  • Building Material and Garden Equipment and Supplies Dealers (NAICS 444)

  • Food and Beverage Stores (NAICS 445)

  • Health and Personal Care Stores (NAICS 446)

  • Gasoline Stations (NAICS 447)

  • Clothing and Clothing Accessories Stores (NAICS 448)

  • Sporting Goods, Hobby, Book, and Music Stores (NAICS 451)

  • General Merchandise Stores (NAICS 452)

  • Miscellaneous Store Retailers (NAICS 453)

  • Nonstore Retailers (NAICS 454)

  • Transportation and Warehousing (NAICS 48-49)

  • Air Transportation (NAICS 481)

  • Rail Transportation (NAICS 482)

  • Water Transportation (NAICS 483)

  • Truck Transportation (NAICS 484)

  • Transit and Ground Passenger Transportation (NAICS 485)

  • Pipeline Transportation (NAICS 486)

  • Scenic and Sightseeing Transportation (NAICS 487)

  • Support Activities for Transportation (NAICS 488)

  • Postal Service (NAICS 491)

  • Couriers and Messengers (NAICS 492)

  • Warehousing and Storage (NAICS 493)

  • Utilities (NAICS 22)

  • Information

  • Information (NAICS 51)

  • Publishing Industries (except Internet) (NAICS 511)

  • Motion Picture and Sound Recording Industries (NAICS 512)

  • Broadcasting (except Internet) (NAICS 515)

  • Internet Publishing and Broadcasting (NAICS 516)

  • Telecommunications (NAICS 517)

  • Data Processing, Hosting, and Related Services (NAICS 518)

  • Other Information Services (NAICS 519)

  • Financial Activities

  • Finance and Insurance (NAICS 52)

  • Monetary Authorities – Central Bank (NAICS 521)

  • Credit Intermediation and Related Activities (NAICS 522)

  • Securities, Commodity Contracts, and Other Financial Investments and Related Activities (NAICS 523)

  • Insurance Carriers and Related Activities (NAICS 524)

  • Funds, Trusts, and Other Financial Vehicles (NAICS 525)

  • Real Estate and Rental and Leasing (NAICS 53)

  • Real Estate (NAICS 531)

  • Rental and Leasing Services (NAICS 532)

  • Lessors of Nonfinancial Intangible Assets (except Copyrighted Works) (NAICS 533)

  • Professional and Business Services

  • Professional, Scientific, and Technical Services (NAICS 54)

  • Management of Companies and Enterprises (NAICS 55)

  • Administrative and Support and Waste Management and Remediation Services (NAICS 56)

  • Administrative and Support Services (NAICS 561)

  • Waste Management and Remediation Services (NAICS 562)

  • Education and Health Services

  • Educational Services (NAICS 61)

  • Health Care and Social Assistance (NAICS 62)

  • Ambulatory Health Care Services (NAICS 621)

  • Hospitals (NAICS 622)

  • Nursing and Residential Care Facilities (NAICS 623)

  • Social Assistance (NAICS 624)

  • Leisure and Hospitality

  • Arts, Entertainment, and Recreation (NAICS 71)

  • Performing Arts, Spectator Sports, and Related Industries (NAICS 711)

  • Museums, Historical Sites, and Similar Institutions (NAICS 712)

  • Amusement, Gambling, and Recreation Industries (NAICS 713)

  • Accommodation and Food Services (NAICS 72)

  • Accommodation (NAICS 721)

  • Food Services and Drinking Places (NAICS 722)

  • Other Services (except Public Administration)

  • Other Services (except Public Administration) (NAICS 81)

  • Repair and Maintenance (NAICS 811)

  • Personal and Laundry Services (NAICS 812)

  • Religious, Grantmaking, Civic, Professional, and Similar Organizations (NAICS 813)

  • Private Households (NAICS 814)



 




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