What is a NAICS code? 

NAICS codes are used by a wide variety of local, state, and federal organizations to classify businesses for many different purposes. According to the United States Census Bureau, several federal agencies use NAICS codes to collect, analyze, and publish statistical data about the U.S. economy. Additionally, some government organizations use a business’s NAICS code to determine eligibility for certain contracts or grants.

What are the benefits of having a NAICS code?

Many agencies use NAICS codes to determine eligibility for grant or incentive programs and for most federal contracts. Further, NAICS codes are often used by commercial lending agencies when considering business loans.

• Federal Contracts - According to the Small Business Administration (SBA), the federal government tries to award up to 18% of federal contracts for SBA-certified businesses each year.  As part of the certification process to be designated as a Woman Owned Small Businesses or HUBZone business, the SBA requires a business to have a valid NAICS code for proper industry classification.

• The Department of Veterans Affairs is another organization that requires a NAICS code to be a designation as a Veteran Owned Small Business (VOSB). Receiving the VOSB designation enables small businesses to compete for VA contracts and improves the likelihood of being awarded other federal contracts.
• Obtaining one or more of these designations can help many small businesses increase their competitiveness and break into new markets. It’s important to note that although each type of business designation that was discussed above has additional requirements for eligibility, having an accurate NAICS code is a crucial first step.

Incentive Programs

State governments often use NAICS codes to offer tax incentives to various industries.  

Lending Services

Some commercial lending services use NAICS codes as part of their loan approval process to help identify industrial considerations and risk that may impact your business. Not having a NAICS code, or having an inaccurate NAICS code, could cause the lending agency to consider the wrong industry risks for your business loan application. Ultimately, ensuring that your business has an accurate NAICS code(s) can improve your chance of being approved for a loan.

Tax Benefits

The Internal Revenue Service uses it to make decisions about whether your tax returns look in line with other businesses in your industry. If you do not have a NAICS code or it is incorrect, the IRS might compare your deductions to a peer group that is different from what it should be.  And, if the deductions aren’t like the others, you might have a higher chance of being audited.

Insurance Benefits & Coding

The NAICS code system is often used by health insurance carriers, worker’s comp carriers, and a variety of other insurance companies to compute premiums and risk.  

Can a business have multiple NAICS codes?

Yes, and if your business has several different industry characteristics it may be appropriate to update your business classification with a secondary or tertiary NAICS code.