The Best NAICS Code To Use For Business Funding

Who wants to start a business and get business funding? If you said YES, you are in the right place. Before you start your business there is something you should know first, NAICS codes. These codes are used when you are filling out paperwork for your business, registering for a business license, and getting your EIN number.

As startup business consultants, we see these codes all of the time. Truthfully, there are too many to remember.

Over 5 million new businesses were established in the United States in 2023. Not all of them will be able to qualify for funding because of how they have classified their business.

This article will go over NAICS codes, how they are used, and why it is important for your startup business.

First, let's take a look at the definition of the NAICS code.

What is NAICS code?

The NAICS code (pronounced nakes) stands for the North American Industry Classification System. It was developed in 1997 as a replacement for the SIC code (Standard Industrial Classification) that had been around since 1937. It is a standardized system used by statistical agencies to classify businesses and industries within North America which includes the United States, Canada, and Mexico. The NACIS codes are six-digital numerical codes that represent specific industries or sectors of the economy.

Now that you know what NAICS stands for, let's review where the NAICS codes are used.

Where do you use NAICS codes?

Government agencies such as the U.S. Census Bureau, the Bureau of Labor Statistics, and the Internal Revenue service all use NAICS codes for reporting and regulating purposes. For example, when businesses file tax returns, register for permits or licenses, or participate in government surveys, they will need to provide their NAICS code to classify their industry. The NAICS code is used as an industry identifier which helps to understand industry trends and operations. These codes are also often used when a business entity is applying for contracts or grants. The NAICS codes are used for market research to assess market opportunities by comparing industry performance across different sectors.

If you have ever started a business or signed up with Sam.gov for government contracting, then you have probably noticed a lot of categories. This website likes to do business with certain kinds of business classifications. That goes for banks as well when it comes to business lending.

Read more below to find out the best NAICS codes to use for business funding.

Which NAICS code is best to use for funding?

The best NAICS codes to use for funding are marketing, consulting, e-commerce, and technology. Here are the top 5 reasons these are the best.

1. They have lower funding requirements. For example, an ecommerce, consulting firm, or marketing agency typically have less upfront investment in equipment, inventory, or even physical location.

2. These industries can be easily scaled. For example, technology, e-commerce, and consulting services can often scale faster without additional investment in physical assets which leads to a higher return on investment.

3. All of the mentioned industries can adapt to changes in the economy or market more easily than real estate.

4. There is a better potential for global reach allowing these industries to be introduced into international markets allowing businesses to expand their customer base than just their local region.

5. There is more room for innovation in ecommerce or technology. Businesses thrive on innovation and new ideas. These are the industries that lead the way.

Now that the best NAICS codes to use for funding have been revealed, it is time to take a look at the ones you should avoid.

Which NAICS code should you avoid?

There are several NAICS codes that should be avoided if you want funding. They are considered high risk because many of them are cash intensive which means it can tempt thieves to steal from your business or have merchandise that thieves might want such as cars.

• Automotive sales

• Travel agencies

• Real estate investing

• Finance businesses and money lending and collecting: financial transactions processing, reserve, and clearinghouse activities; other activities related to credit intermediation; consumer lending

• Jewelry retailers

• Restaurants: full-service; limited-service

• Tobacco product and electronic cigarette merchant wholesalers

That doesn't mean all is lost for funding. That is where alternative funding comes in. We work with partners who can find funding specifically designed for these types of industries. Knowing which best code to use is crucial if business funding is on the as a new startup. It will also help you to determine how you will want to structure your business so that you can get the most funding without the hassle of trying to find lenders who will work with your industry.

Working with us as new startup consulting can help you come up with a plan to get your business started on the right note.

Did this article help you? Let us know. Also you have any questions feel free to reach out to us.