NAICS stands for North American Industry Classification System, which classifies businesses into a specific group with similar companies, but it’s more than a number on paper. Your NAICS code can impact what you pay for business insurance, what government regulations you face, and the wrong code can be the reason you don’t get a business loan.
How the NAICS Code System Works
The codes start with a 2-digit number called a sector and then build up to 6 numbers as the group description gets more specific. The table below shows an example for a trucking company. The more specific the grouping, the more or less opportunities you may have when it comes to taking loans, qualifying for grants, getting good insurance policies, and even the amount of spam mail you receive.
| NAICS Grouping | Code | Description |
| Sector (most broad) | 48 | Transportation |
| Subsector | 484 | Truck Transportation |
| Industry Group | 4841 | General Freight Trucking |
| NAICS Industry | 48412 | General Freight Trucking, Long-Distance |
| US Specific Detail (most specific) | 484122 | General Freight Trucking, Long-Distance, Less Than Truckload |
Choosing the Right NAICS Code Matters for Your Business
Insurance companies use NAICS codes to identify the risks a business might face, so the wrong code can hit your bottom line as a result of higher premiums. If you own a local moving company that uses a truck, your NAICS code should be 484110. If your vehicle is accidentally misclassified as a big-rig, cross country truck with NAICS 484121, the insurance company will want to charge you more. Further, insurance companies aren’t the only groups that use NAICS to define and work with your business.
The government uses NAICS codes to determine the regulations that impact your business. One example is whether you’re required to keep injury records and file with OSHA. Within the link, in table 1, you’ll see they give partial exemptions* for specific NAICS codes like 4431 and 7114. In table 2, you’ll see new industries that are required to keep records like 5311 and 7111.*
Your NAICS code may influence whether your business qualifies for funding and grants, and may help you identify new financing options by searching Google for the code plus “grant.” Plus, you must be under the SBA size standards for your NAICS code to qualify as a small business for government contracting opportunities and for getting an SBA loan. You can appeal if the SBA has the wrong code, but the process could take time that you don’t have to spare, so it’s better to check long before you need a loan.
Banks and other creditors look at NAICS codes from business credit rating agencies like Dun & Bradstreet or Experian when you apply for loans. They use the codes to identify risks associated with your industry and compare you to similar businesses.
If the agencies have the wrong code for you, it could result in a rejection or a higher rate from the bank. But don’t worry, you can change the NAICS code if you accidentally misclassified your business.
How to Change Your NAICS Code
To change your NAICS code:
- Begin modifying your information with the credit bureaus, like Dun & Bradstreet here and Experian here.
- Check your code with the Secretary of State where you registered your business and follow their directions as well.
- Look for other areas where your business has its NAICS code listed, like government contracts, the census bureau website, and tax forms. Begin updating them one by one.
Other than qualifying for grants and getting better policies with insurance companies, there are other benefits to having the right NAICS code, as opposed to having/leaving your business misclassified. Here’s another example.
The wrong NAICS code might cause you to get more junk mail each week since sales and marketing teams use them to create lead lists for advertising. If you run a “Graphic Design Service” (NAICS 541430) but the marketing data companies have you classified as “Other Computer Related Services” (NAICS 541519), and there are more products being marketed to 541519, your mailbox will often be loaded with postcards and junk mail that don’t apply to you.
Pro-tip: From a marketing perspective, you can use NAICS codes to create B2B marketing campaigns focused on high-intent customers, wasting less money advertising to businesses that are in the same industry but not a qualified target.
NAICS codes matter for your business: from insurance rates to loan qualification and more. If you’re unsure of your NAICS code, check with the Secretary of State where you registered your business. You can also contact the ratings agencies to make sure they correctly classify your business so that lenders get the correct information when they pull your business credit.
*as of 12/7/2024
About the Author
Pretha Yasmin
Pretha Yasmin is the consumer analyst for SmallBusinessLoans. She has more than five years of experience in marketing and studying consumer behavior for a wide range of industries including finance, construction, and hospitality. She holds a Bachelor of Business Administration in marketing from Brooklyn College.
