Key Takeaways
- Your NAICS code helps you and others categorize your business at its most specific level
- NAICS codes are used for a variety of purposes, including taxes, identifying industry benchmarks, insurance, and more
- NAICS codes have a large effect on how your business qualifies for an SBA loan
- NAICS codes are self-assigned using the NAICS code look-up tool
What is a NAICS code?
NAICS stands for North American Industry Classification System. Your NAICS code is a 6-digit code used to identify your business’s industry and its most specific level.
Structure of a NAICS code
The first two digits of your NAICS code represent your business’s sector- such as retail or hospitality. The remaining digits signify your business’s subsector, industry group, NAICS industry, and national industry, respectively.
Ultimately, this hierarchical structure allows NAICS codes to communicate your business’s industry and purpose down to a specific level.
Ultimately, this hierarchical structure allows NAICS codes to communicate your business’s industry and purpose down to a specific level.
Why do NAICS codes matter?
NAICS codes prevent oversimplification of the broader business playing field. NAICS codes take into account your business’s economic activity and compare you to the standards of others in your specific industry.
NAICS codes are used in a variety of contexts, such as:
NAICS codes are used in a variety of contexts, such as:
Government Business
Government agencies use NAICS to collect, analyze, and publish economic data. NAICS codes are also used when determining your eligibility for certain government programs, grants, and contracts.
Market Research
Businesses use NAICS codes to analyze competitors, identify market trends, and research industry benchmarks to help you track growth and competition.
Taxation
The IRS uses NAICS codes to monitor deductions and income, flagging anything unusual for that industry.
Insurance
Insurers use NAICS codes to determine premium rates and coverage based on industry-specific risks.
How does my NAICS code affect my SBA loan?
Your NAICS code factors into your SBA loan application in several ways:
Business Size Standards
Your NAICS code helps determine whether your business is considered a “small business” according to the SBA. The size standards for NAICS codes are based on annual revenue (for most service industries) and number of employees (for manufacturing industries).
Risk Assessment and Industry Disqualification
Your NAICS communicates your relative risk level for defaulting on your loan. There are certain NAICS codes that the SBA does not offer loans to because they are too high-risk.
For example, casinos (NAICS code 713210) are considered too risky due to more than 1/3 of their revenue coming from gambling, making their financial stability too speculative.
Additionally, some NAICS codes are disqualified for other reasons.
Examples include lending and finance companies (NAICS codes 522298 or 522291), which are disqualified because it is a conflict of interest with the SBA’s mission, or life insurance companies (NAICS code 524113), which are ineligible because of regulatory and financial structures.
For example, casinos (NAICS code 713210) are considered too risky due to more than 1/3 of their revenue coming from gambling, making their financial stability too speculative.
Additionally, some NAICS codes are disqualified for other reasons.
Examples include lending and finance companies (NAICS codes 522298 or 522291), which are disqualified because it is a conflict of interest with the SBA’s mission, or life insurance companies (NAICS code 524113), which are ineligible because of regulatory and financial structures.
Interest Rates
When lenders are processing your loan application and determining the terms of your loan, NAICS codes are taken into account, amongst other factors, to establish your loan’s interest rate.
Location Dependency
Some NAICS codes signal to lenders that your business is location-dependent. When your business is deemed location-dependent, lenders may request that you provide a lease agreement as part of your application. The more location-dependent your business is, the longer the lease term needs to be in order to qualify for an SBA loan.
How can I get my NAICS code?
NAICS codes are ultimately self-assigned. Here is how you can approach your assessment:
- Open the NAICS lookup tool
- Either search by keyword or browse the general sectors
- Work your way through each level of specifications until you’ve landed on the NAICS sector that most accurately and specifically describes your business’s economic activity
Once you’ve identified your business’s NAICS code, ensure that you use that code consistently across all applications, business licenses, tax filings, etc.
Knowing your NAICS code empowers you as a small business owner to access the right funding, comply with regulations, and unlock opportunities tailored to your industry. It’s a simple step that can make a big difference in how your business grows and competes.
Get funded! Find out how much your small business qualifies for today.
