Back to Basics: NAICS

Back to Basics: NAICS (North American Industry Classification System)

The North American Industry Classification System (NAICS) is the standard framework used to classify businesses based on what they actually do. Each business is assigned a six-digit code that reflects its primary line of activity.

NAICS is used consistently across the United States, Canada, and Mexico, making it easier for governments, lenders, and researchers to collect and compare economic data.

For example:

  • A retail bakery may use 311811 – Retail Bakeries
  • A construction company would fall under a completely different category

Where NAICS Shows Up in Real Life

NAICS codes aren’t just for statisticians - they show up in very practical situations:

  • Business loans
  • Government contracts
  • Industry benchmarking
  • Regulatory and risk analysis

If you apply for financing or a public contract, the lender or agency will almost always look at your NAICS code to understand your industry’s risk profile.

It’s also common for businesses to have more than one NAICS code. For example, a company that manufactures products and sells them online may legitimately use separate codes for each activity, as long as the primary code reflects the main source of revenue.

Why It Matters in Finance

Your NAICS code influences how lenders, investors, and regulators view your business. It can affect:

  • Risk assessments
  • Peer benchmarking
  • Eligibility for certain loan programs
  • Access to tax credits or incentives

Choosing the right code is more important than many business owners realize.

Why Lenders Care About Your NAICS Code

Lenders use NAICS codes as a shortcut to assess industry-level risk. Here’s how it impacts your loan application:

1. Risk Assessment

Some industries (e.g., restaurants or long-haul trucking) have historically higher default rates than others (e.g., medical practices). If your NAICS code falls into a higher-risk category, lenders may:

  • Require more collateral
  • Offer smaller loan amounts
  • Charge higher interest rates

2. Eligibility for Government Programs

Government-backed loans, including those from the Small Business Administration (SBA), use NAICS-based size standards. These standards determine whether you qualify as a “small business” based on:

  • Annual revenue, or
  • Number of employees

3. Restricted Industries

Some banks will not lend to certain industries at all (e.g., gambling, cannabis, or adult entertainment). If your NAICS code matches a restricted category, your application may be automatically declined.

How to Find the Right NAICS Code

You don’t apply for a NAICS code - you select the one that best matches your business.

Best practices:

  • Search the official NAICS database using keywords related to your activities
  • Be specific - “Construction” is too broad
    • Example:
      • 236115 - New Single-Family Housing Construction
      • 238210 - Electrical Contractors
  • Check your tax returns - your accountant may already be using a code on:
    • Schedule C
    • Form 1120

Common Pitfalls to Avoid

The “Wrong Code” Delay

If the NAICS code on your loan application doesn’t match your tax filings or insurance records, lenders may flag it as a potential issue, even if it’s just a clerical mismatch.

Scenario Potential Impact
Broad classification May unintentionally place you in a higher-risk category
Outdated code Miss out on better loan terms after a business pivot
Inconsistency Triggers manual underwriting reviews and delays

Pro Tip

Before submitting a loan application, confirm that your NAICS code is consistent across:

  • Secretary of State filings
  • Business tax returns
  • Business credit profiles (e.g., Dun & Bradstreet, Experian Business)

A simple mismatch can delay funding for weeks.

Visit GLOBAL ABAS for more insights.

Disclaimer: This post is for informational purposes only and does not constitute financial, legal, or investment advice. Please consult a qualified professional for guidance tailored to your situation.

For personalized support, contact GLOBAL ABAS Consulting, LLC with your specific questions or concerns.

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Copyright © 2026 GLOBAL ABAS Consulting, LLC. All rights reserved.

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