NAIC and SIC Codes to Build Business Credit

A common reason for loan rejection is that the application does not display the legal business name that is on file in state documents. It is important to ensure that all company records, certificates, and bank accounts use the same name. If your business operates in a high-risk market, your company name may be problematic. High-risk markets are typically characterized by a higher chance of injury to employees or a business that handles more cash transactions than others. To avoid this, it is advisable to avoid using a business name that identifies a high-risk industry in your application.

If you acquire an aged shelf company, don’t change the name of the company.  You’re better off filing a Doing-Business-As (DBA).

Lenders may view certain industries as high-risk, which can lead to automatic loan rejections or stricter loan terms. They assess a company’s industry by looking at factors such as its code, which may be a SIC or NAICS code. To avoid automatic denials, it is important to be truthful about the company’s industry while also finding ways to mitigate any perceived risks. It is important to note that the list of high-risk industries may change, and the information can be found by searching online for “High Risk NAICS Codes.”

Lenders often view certain industries as high-risk and may automatically deny loan applications from companies within these industries. These industries may include, but are not limited to, gambling, adult entertainment, firearms, and marijuana-related businesses. Lenders determine the industry a company is in based on factors such as the company’s code, which may be a SIC or NAICS code. It’s important for companies within these restricted industries to be truthful and not attempt to conceal their industry when applying for loans, as this can result in potential denials and even criminal charges. However, companies within these industries can still explore alternative financing options or seek out lenders that specialize in high-risk industries.

It is important to note that the list of high-risk industries may change over time and can vary depending on the lender. It is also important to be truthful about the nature of your business and to avoid making false or misleading statements.

SIC codes, or Standard Industrial Classification codes, are a system used by the U.S. government to classify and categorize businesses based on their primary industry or line of work. These codes are assigned by the U.S. Office of Management and Budget, and are used by various government agencies, as well as private businesses, to gather and analyze economic data. Each SIC code corresponds to a specific industry or sector, such as manufacturing, finance, or retail. Businesses can be assigned one or more SIC codes, depending on their operations. The SIC code system has been replaced by NAICS (North American Industry Classification System) codes which is a more detailed classification system.

It’s worth noting that while the SIC codes were widely used in the past, they have been largely replaced by the North American Industry Classification System (NAICS) codes in government and industry use. NAICS codes are similar to SIC codes in that they classify businesses by industry and activity, but they have a different structure and more detailed industry breakdowns. Lenders and other organizations may still use SIC codes, but it’s more likely that they will use NAICS codes when determining the nature of a company’s operation.

The North American Industry Classification System (NAICS) is a system used by governments and private organizations in the United States, Canada, and Mexico to classify businesses by their type of economic activity. Unlike the SIC codes, which uses a four-digit numbering system, NAICS codes use a six-digit numbering system. Each digit in the code represents a different level of industry classification, with the first two digits representing the most general classification and the last four digits representing a more specific classification. For example, the code “311352” would represent the industry of “Confectionery from Cacao Beans from Confectionery Manufacturing from Confectionery, Nut, and Confectionery Product Manufacturing”. NAICS codes are updated every five years to reflect changes in the economy and the types of businesses that exist.