What Is a NAICS Code and Why It Matters for Your Business

If you’ve ever applied for a business loan, filed your taxes, or filled out paperwork to register your company, you’ve probably come across something called a NAICS code. And if you’re like most small business owners, you probably didn’t give it much thought.

But here’s the truth: Your NAICS code can directly impact your ability to get funded, win contracts, qualify for tax incentives, and more.

Let’s break it all down so you’re not just checking boxes—you’re making strategic moves.

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What Does NAICS Stand For?

NAICS stands for North American Industry Classification System. It’s a standardized system used by the U.S., Canada, and Mexico to categorize businesses based on the industry they operate in.

Every business in the U.S. is assigned a six-digit NAICS code that describes its primary business activity. These codes are used by government agencies, lenders, and analysts to track economic activity, measure industry trends, and enforce regulations.

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Why Should Business Owners Care About Their NAICS Code?

Your NAICS code isn’t just a formality—it carries real weight in how your business is viewed by:

• Lenders and banks
• Insurance companies
• The SBA (Small Business Administration)
• Investors
• Government agencies and grant providers

Choosing the wrong NAICS code (or leaving it up to chance) can get your loan application denied, increase your insurance premiums, or disqualify you from opportunities you should be eligible for.

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How Is a NAICS Code Structured?

Let’s quickly break down how the six digits work:

• First two digits: Broad industry category (e.g., 54 = Professional Services)
• Third digit: Sub-sector within the broader category
• Fourth digit: Further specialization
• Fifth digit: More detail within the specific industry
• Sixth digit: Country-specific breakdown (U.S.-only level of detail)

For example, a business that provides digital marketing services might have the NAICS code 541613, which means:

• 54 = Professional, Scientific, and Technical Services
• 541 = Specialized Design Services
• 5416 = Management, Scientific, and Technical Consulting Services
• 541613 = Marketing Consulting Services

Every digit adds more clarity about what your business actually does.

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Where Do You Find or Choose Your NAICS Code?

You can find your NAICS code by visiting the U.S. Census Bureau’s NAICS lookup tool online. If you’re registering a new business or updating your classification, you can search for a keyword that describes your business and select the code that best fits.

But here’s the catch: There’s often more than one code that could apply. Choosing the right one can make a big difference in how your business is evaluated.

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NAICS Codes and Business Loans: Why It Matters More Than You Think

Lenders and underwriters use NAICS codes to determine how risky your industry is.

Let that sink in. You might be an incredibly responsible borrower with great credit—but if your business is lumped into a high-risk industry category, your funding options may shrink or your rates might skyrocket.

For example:

• NAICS codes in industries like construction, trucking, or restaurants are often flagged as higher risk.
• NAICS codes in sectors like IT, healthcare, or consulting are seen as lower risk.

This affects:

• Loan approval chances
• Interest rates
• Loan amounts
• SBA loan eligibility

Tip: If you offer multiple services, choose the code that reflects the most stable, fundable aspect of your business—even if it’s not your biggest revenue driver.

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Do NAICS Codes Affect SBA Loans? Absolutely.

When applying for SBA loans, your NAICS code plays a big role in determining:

• Whether your business is considered an eligible industry
• Whether your business qualifies as “small” based on revenue or number of employees
• Whether you fall under any SBA restrictions (some codes are ineligible)

For example, industries related to gambling, lending, pyramid schemes, and adult entertainment are considered ineligible for SBA-backed financing—even if the business is legally registered and profitable.

So yes—one wrong digit in your NAICS code can sabotage your SBA application.

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How NAICS Codes Affect Business Insurance and Compliance

Insurance companies also use NAICS codes to set premiums. The logic is simple: higher-risk industries = higher premiums.

Let’s say you run a consulting firm but mistakenly classify your business under “construction project management.” Even if you never touch a hammer, your insurance costs could shoot up because the system thinks you’re in a dangerous field.

Beyond pricing, the wrong NAICS code can cause compliance issues, trigger audits, or raise red flags with regulators.

Bottom line: Getting your NAICS code right isn’t optional—it’s part of protecting your business long term.

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NAICS Codes and Government Grants or Contracts

Many grant programs and federal contracts are limited to certain NAICS codes. If you’re targeting minority-owned business grants, women-owned business certifications, or set-aside contracts, your NAICS code may be a determining factor in whether you qualify.

Example: A government agency might release a contract available only to companies in NAICS code 541511 (Custom Computer Programming Services). If your code is off—even slightly—you’ll be disqualified before your proposal is even reviewed.

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Can You Change Your NAICS Code Later?

Yes, but you’ll need to update it with every agency or institution that uses it:

• Your state or local business registry
• The IRS
• SAM.gov for government contracting
• Your lender or funding partner
• Credit bureaus (like Dun & Bradstreet or Experian Business)

Changing your code can reopen eligibility for funding or better align your company with strategic goals—but don’t take it lightly. Your classification should always match your actual services to avoid fraud accusations or penalties.

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How to Choose the Most Strategic NAICS Code

Here’s how smart business owners make the most of their NAICS classification:

1. Search the NAICS database

Start by going to https://www.naics.com/search/ and entering keywords that describe your business activities.

2. Look at your competitors

Check public filings or online profiles of competitors to see what codes they use—especially those who are funded or approved for contracts.

3. Talk to a funding expert

A business loan broker, CPA, or financial consultant can help you identify the least risky code that still accurately represents what you do.

4. Avoid restricted industries

Stay away from codes flagged as high-risk or ineligible for government programs unless it’s 100% necessary.

5. Update your code proactively

Don’t wait until you’re denied funding. Review your NAICS classification at least once a year or anytime your business model changes.

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Common NAICS Mistakes to Avoid

Here are a few pitfalls that can derail your funding or compliance:

• Copying someone else’s code without verifying it
• Choosing a broad code when a specific one is better
• Leaving your code blank or using “miscellaneous”
• Not updating your NAICS code after pivoting your business
• Listing multiple conflicting codes across different systems

Pro tip: The NAICS code you use on your loan application should match what you list on your tax return, SAM.gov profile, and business credit reports.

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Conclusion: NAICS Codes Aren’t Just Bureaucratic Noise—They’re Strategic Levers

Your NAICS code is one of the most overlooked strategic tools in your business toolbox.

The right classification can help you:

• Qualify for better funding
• Lower your insurance costs
• Win grants and contracts
• Stay compliant with agencies and lenders
• Build a trustworthy profile with business credit bureaus

Don’t let this be an afterthought. Take the time to review, research, and align your code with your business goals.

If you’re unsure about your current NAICS classification, or if you’re thinking about applying for funding, it might be time to talk to a professional who can help guide your choice. A few digits can mean the difference between a closed door and a six-figure opportunity.