Tag: Avoiding

In Just a Few Minutes of Your Time, Learn All About Avoiding Risky NAICS Codes

What are NAICS Codes?

And how can they affect if you can get funding? We tell you all about NAICS Codes. They could be the difference between getting business money or not getting any money.

NAICS Codes: Some Background

Federal statistical agencies use the North American Industry Classification System (NAICS) . The idea is to classify business establishments. This is to collect, analyze, and publish statistical data, related to the U.S. business economy.

The NAICS was developed under the auspices of the Office of Management and Budget (OMB). Its adoption was in 1997. The intention is to replace the Standard Industrial Classification (SIC) system. The U.S. Economic Classification Policy Committee (ECPC) developed it with Statistics Canada and Mexico’s Instituto Nacional de Estadistica y Geografia. The intent was to make business stats easy to compare among North American countries.

What is the NAICS Structure and How Many Digits are in an NAICS Code?

NAICS is a 2- through 6-digit hierarchical classification system. It offers five levels of detail. Each digit in the code is part of a series of progressively narrower categories. The more digits in the code, the more classification detail.

Details on NAICS Code Structure

The first two digits are the economic sector. The third digit designates the subsector. And the fourth digit designates the industry group. The fifth digit designates the NAICS industry. The sixth digit designates the national industry.

A 5-digit NAICS code is comparable in code and definitions for most of the NAICS sectors. This is across the three countries participating in NAICS. They are the United States, Canada, and Mexico. The 6-digit level lets the U.S., Canada, and Mexico all have country-specific detail. A complete and valid NAICS code has six digits.

Codes and Industries

NAICS industry codes define businesses based on the primary activities they engage in. Recently, the NAICS changed many of its codes as it updated its philosophy. It no longer sets aside online businesses. Now the NAICS no longer distinguishes businesses by how they deliver goods or services.

High Risk NAICS Codes

There is an older NAICS list of high-risk and high-cash industries. Higher risk industries on the list include casinos, pawn shops, and liquor stores. But it also included automotive dealers and restaurants. But this list is from 2014 and does not appear to have ever gotten any updating.

Per the NAICS, various professionals in the banking industry compiled the list. The idea was to use it as a working guide. But it is not an officially sanctioned list. They do not guarantee the accuracy of this list.

Codes and Risk

When considering any aspects of a business, risk must be a major factor. There are inherent issues in every single industry. But some businesses are considered to be risky by their very nature. This is the case even if everything else goes off like a hitch and the business is prospering. Risk is inherent within these business types. Even if your business doesn’t feel risky, it could be anyway.

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

Why Risk Matters

The biggest reason why risk matters has to do with funding. There are several industries where lending institutions are hesitant to do business. In those particular cases, there are stricter underwriting guidelines. But at least a company can get funding.

In some industries, no funding is available at all. As a result, those businesses will need to find other solutions for financing. These solutions can include:

  • Crowdfunding
  • Angel investors
  • Venture capital
  • Business credit building and more

Still, a lot of businesses would rather work with lenders. But where are lenders’ ideas of the degree of risk coming from? One clue comes from the CDC.

Real Injury Risks According to the CDC

The Centers for Disease Control looks at risks in small businesses. Part of the calculation of risk comes from occupational injuries. But the other side of the risk coin is occupations which are high in cash transactions. After all, a pawn shop might not have much of a specific risk of injury at all. But the large amounts of cash normally associated with one mean it can be a tempting target for thieves.

A Look at Some Restricted Industries

These industries (among many others) can get an automatic decline:

  • Ammunition or weapons manufacturing; wholesale and retail
  • Energy, oil trading, or petroleum extraction or production
  • Gaming or gambling activities
  • Loans for the speculative purchases of securities or goods
  • Political campaigns, candidates, or committees
  • Public administration
    1. City, county, state, and federal governmental agencies
  • X-rated products or entertainment

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

A Look at Some High-Risk Industries

These industries (among many others) can be subject to stricter underwriting guidelines:

  • Auto, RV or boat sales
  • Computer and software related services including programming
  • Dry cleaners
  • Gas stations or convenience stores
  • Limousine services
  • Long distance or “over-the-road” trucking
  • Mobile or manufactured home sales
  • Phone sales and direct selling establishments
  • Real estate agents/brokers
  • Real estate developers or land sub-dividers
  • Restaurants or drinking establishments
  • Taxi cabs
    1. This includes buying cab medallions
  • Travel agencies

A Look at Some High-Risk NAICS Codes

According to the older list, the following codes are among those considered to be high risk:

  • 445310 – Beer, Wine, and Liquor Stores
  • 424940 – Tobacco and Tobacco Product Merchant Wholesalers
  • 811113 – Automotive Transmission Repair

How do you choose a better code?

Using a Different NAICS Code

Of course you want to be 100% honest when it comes to selecting your NAICS code. But if more than one can apply, you don’t have to choose the one that’s higher risk. So it pays to check and be careful when making your selection.

Also, if only high risk codes apply, there’s nothing wrong with changing your business. Then you may be able to match a related but lower risk code. There is nothing underhanded or dishonest about doing this.

An Example of How to Switch an NAICS Code

Let’s say your business is automotive transmission repair (NAICS Code 811113). We know this is a high risk code. But 811191 is not on the NAICS list. It covers Automotive Oil Change and Lubrication Shops. So why not offer oil changes and use the lower risk code? It could be the difference between getting funding, or not.

Which Agencies Use NAICS Codes?

The Internal Revenue Service will use the NAICS code you select. This is to see if your business tax returns are comparable to other businesses in your industry. If your deductions do not reasonably resemble other businesses in your industry, your business could be subject to an audit.

The IRS may label some companies as high-risk when they do not choose the right NAICS code. But if you know how the system works, then you can choose the correct code on your first try.

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

Which Agencies Other Than the IRS Use These Codes?

Lenders, banks, insurance companies, and business CRAs all use codes. They tend to use both NAICS and SIC Codes. SIC Codes are the older business classification system. D&B uses both SIC and NAICS Codes.

OSHA uses NAICS Codes for industry identification in its data. These agencies use them to determine if your business is in a high-risk industry. So you could get a loan or business credit card denial based on your business classification. Some SIC codes in particular can trigger automatic turn-downs. You could end up paying higher premiums, and get reduced credit limits for your business.

There Are No Guarantees in Life

Will a better NAICS code guarantee funding for your business venture? Of course it won’t. But at least your business will not be automatically turned down before you can make a case for funding.

NAICS Codes: Takeaways

Industries are defined by codes from the North American Industry Classification System. Codes go up to six digits for the most granular information. Some codes are always associated with high risk. This makes it harder to get business funding. So if more than one NAICS code can apply to your business, pick the one that’s less risky.

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In Just a Few Minutes of Your Time, Learn All About Avoiding Risky NAICS Codes

What are NAICS Codes?

And how can they affect if you can get funding? We tell you all about NAICS Codes. They could be the difference between getting business money or not getting any money.

NAICS Codes: Some Background

Federal statistical agencies use the North American Industry Classification System (NAICS) . The idea is to classify business establishments. This is to collect, analyze, and publish statistical data, related to the U.S. business economy.

The NAICS was developed under the auspices of the Office of Management and Budget (OMB). Its adoption was in 1997. The intention is to replace the Standard Industrial Classification (SIC) system. The U.S. Economic Classification Policy Committee (ECPC) developed it with Statistics Canada and Mexico’s Instituto Nacional de Estadistica y Geografia. The intent was to make business stats easy to compare among North American countries.

What is the NAICS Structure and How Many Digits are in an NAICS Code?

NAICS is a 2- through 6-digit hierarchical classification system. It offers five levels of detail. Each digit in the code is part of a series of progressively narrower categories. The more digits in the code, the more classification detail.

Details on NAICS Code Structure

The first two digits are the economic sector. The third digit designates the subsector. And the fourth digit designates the industry group. The fifth digit designates the NAICS industry. The sixth digit designates the national industry.

A 5-digit NAICS code is comparable in code and definitions for most of the NAICS sectors. This is across the three countries participating in NAICS. They are the United States, Canada, and Mexico. The 6-digit level lets the U.S., Canada, and Mexico all have country-specific detail. A complete and valid NAICS code has six digits.

Codes and Industries

NAICS industry codes define businesses based on the primary activities they engage in. Recently, the NAICS changed many of its codes as it updated its philosophy. It no longer sets aside online businesses. Now the NAICS no longer distinguishes businesses by how they deliver goods or services.

High Risk NAICS Codes

There is an older NAICS list of high-risk and high-cash industries. Higher risk industries on the list include casinos, pawn shops, and liquor stores. But it also included automotive dealers and restaurants. But this list is from 2014 and does not appear to have ever gotten any updating.

Per the NAICS, various professionals in the banking industry compiled the list. The idea was to use it as a working guide. But it is not an officially sanctioned list. They do not guarantee the accuracy of this list.

Codes and Risk

When considering any aspects of a business, risk must be a major factor. There are inherent issues in every single industry. But some businesses are considered to be risky by their very nature. This is the case even if everything else goes off like a hitch and the business is prospering. Risk is inherent within these business types. Even if your business doesn’t feel risky, it could be anyway.

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

Why Risk Matters

The biggest reason why risk matters has to do with funding. There are several industries where lending institutions are hesitant to do business. In those particular cases, there are stricter underwriting guidelines. But at least a company can get funding.

In some industries, no funding is available at all. As a result, those businesses will need to find other solutions for financing. These solutions can include:

  • Crowdfunding
  • Angel investors
  • Venture capital
  • Business credit building and more

Still, a lot of businesses would rather work with lenders. But where are lenders’ ideas of the degree of risk coming from? One clue comes from the CDC.

Real Injury Risks According to the CDC

The Centers for Disease Control looks at risks in small businesses. Part of the calculation of risk comes from occupational injuries. But the other side of the risk coin is occupations which are high in cash transactions. After all, a pawn shop might not have much of a specific risk of injury at all. But the large amounts of cash normally associated with one mean it can be a tempting target for thieves.

A Look at Some Restricted Industries

These industries (among many others) can get an automatic decline:

  • Ammunition or weapons manufacturing; wholesale and retail
  • Energy, oil trading, or petroleum extraction or production
  • Gaming or gambling activities
  • Loans for the speculative purchases of securities or goods
  • Political campaigns, candidates, or committees
  • Public administration
    1. City, county, state, and federal governmental agencies
  • X-rated products or entertainment

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

A Look at Some High-Risk Industries

These industries (among many others) can be subject to stricter underwriting guidelines:

  • Auto, RV or boat sales
  • Computer and software related services including programming
  • Dry cleaners
  • Gas stations or convenience stores
  • Limousine services
  • Long distance or “over-the-road” trucking
  • Mobile or manufactured home sales
  • Phone sales and direct selling establishments
  • Real estate agents/brokers
  • Real estate developers or land sub-dividers
  • Restaurants or drinking establishments
  • Taxi cabs
    1. This includes buying cab medallions
  • Travel agencies

A Look at Some High-Risk NAICS Codes

According to the older list, the following codes are among those considered to be high risk:

  • 445310 – Beer, Wine, and Liquor Stores
  • 424940 – Tobacco and Tobacco Product Merchant Wholesalers
  • 811113 – Automotive Transmission Repair

How do you choose a better code?

Using a Different NAICS Code

Of course you want to be 100% honest when it comes to selecting your NAICS code. But if more than one can apply, you don’t have to choose the one that’s higher risk. So it pays to check and be careful when making your selection.

Also, if only high risk codes apply, there’s nothing wrong with changing your business. Then you may be able to match a related but lower risk code. There is nothing underhanded or dishonest about doing this.

An Example of How to Switch an NAICS Code

Let’s say your business is automotive transmission repair (NAICS Code 811113). We know this is a high risk code. But 811191 is not on the NAICS list. It covers Automotive Oil Change and Lubrication Shops. So why not offer oil changes and use the lower risk code? It could be the difference between getting funding, or not.

Which Agencies Use NAICS Codes?

The Internal Revenue Service will use the NAICS code you select. This is to see if your business tax returns are comparable to other businesses in your industry. If your deductions do not reasonably resemble other businesses in your industry, your business could be subject to an audit.

The IRS may label some companies as high-risk when they do not choose the right NAICS code. But if you know how the system works, then you can choose the correct code on your first try.

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

Which Agencies Other Than the IRS Use These Codes?

Lenders, banks, insurance companies, and business CRAs all use codes. They tend to use both NAICS and SIC Codes. SIC Codes are the older business classification system. D&B uses both SIC and NAICS Codes.

OSHA uses NAICS Codes for industry identification in its data. These agencies use them to determine if your business is in a high-risk industry. So you could get a loan or business credit card denial based on your business classification. Some SIC codes in particular can trigger automatic turn-downs. You could end up paying higher premiums, and get reduced credit limits for your business.

There Are No Guarantees in Life

Will a better NAICS code guarantee funding for your business venture? Of course it won’t. But at least your business will not be automatically turned down before you can make a case for funding.

NAICS Codes: Takeaways

Industries are defined by codes from the North American Industry Classification System. Codes go up to six digits for the most granular information. Some codes are always associated with high risk. This makes it harder to get business funding. So if more than one NAICS code can apply to your business, pick the one that’s less risky.

The post In Just a Few Minutes of Your Time, Learn All About Avoiding Risky NAICS Codes appeared first on Credit Suite.

Federal Funding, the Coronavirus, and Avoiding Scams

It was … inevitable. As the federal funding bailout was put together, and the SBA Paycheck Protection Program was announced, the scammers came out of the woodwork.

Not now, Satan.

Federal Funding and the Dirty Business of Scamming

There are essentially two ways in which scammers could try to bilk the system. One is by way of fraudulent applications for federal funding. The other is by targeting small businesses and trying to rip them off.

Let’s take a look at both.

Scammers Trying Fraudulent Applications for Federal Funding

Both CNN and the New York Times warn of a crush of demand, particularly at the start. And it’s no wonder, as there have been nearly 10 million new unemployment claims for the weeks of March 15 – 28. Businesses large and small are shedding workers. Hopefully, a lot of this unemployment will be temporary.

But in the meantime, there are so many businesses in need that the ability of fraudsters to slip their bad actions in amongst the legitimate claims is heightened. That’s not good news. After all, the federal funding is limited. Federal funding isn’t infinite – and just printing up money to meet demand invites catastrophic inflation.

Fraudulent Applications for Federal Funding – the CARES Act May Be Making that Easier, not Harder


One update has been to raise the interest rate from .5% to 1%. The idea is to make it easier for community banks to participate.

According to the ABA Banking Journal:

“The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs…The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.”

CNN notes:

“In light of the urgent needs, Congress also allowed the SBA to expand eligible lenders who can participate in the program, meaning that banks that typically aren’t included on the SBA’s preferred lender list and don’t have experience administering SBA loans will now be allowed to.”

Is this a recipe for problems? You’d better believe it.

The SBA and federal government – rightfully – want to streamline the process and get cash into the hands of as many small business owners as possible. But unprecedented volume + inexperienced lenders + a ton of cash + scammers smelling easy marks = every opportunity for things to go haywire.

Federal Funding COVID-19 Scams Credit Suite

Want to review your options with one of our consultants? Give us a call at 877-600-2487.

Federal Funding and Attempts to Rip off Small Businesses

In perhaps the unkindest cut of all, there are already situations of scammers trying to prey upon desperate small business owners.

According to the SBA, they do not initiate calls regarding either 7(a) or disaster loans or grants.

“If you are proactively contacted by someone claiming to be from the SBA, suspect fraud.”

It’s best to hear it straight from the SBA about scammers.

SBA Federal Funding Advice on Scammers

 

  • “If you are contacted by someone promising to get approval of an SBA loan, but requires any payment up front or offers a high interest bridge loan in the interim, suspect fraud.
  • SBA limits the fees a broker can charge a borrower to 3% for loans $50,000 or less and 2% for loans $50,000 to $1,000,000 with an additional ¼% on amounts over $1,000,000.  Any attempt to charge more than these fees is inappropriate.
  • If you have questions about other SBA lending products, call SBA’s Answer Desk at 800-827-5722 or send an email to answerdesk@sba.gov.”

 

And, of course, the SBA also warns small business owners to be on the lookout for phishing schemes, where fraudsters send official-looking email in the hopes that an entrepreneur will reveal important private information. This private information includes passwords, Social Security Numbers, and the like.

Fortunately, there are ways to spot an SBA loan scam.

Inc’s Ways to Spot an SBA Loan Scam

Inc offers four helpful ways to determine if someone is trying to scam you as you apply for an SBA PPP loan (or any other SBA loan emerging from the COVID-19 situation).

1. Don’t Reveal Any Personal Information

Much like the SBA warns, scammers may try to contact your business and offer help getting loans – or even the loans themselves. That is, so long as you hand over your business credit card number or the like.

According to Inc:

“Scammers could use this information to apply for a loan on your behalf–and you’ll be on the hook for paying it back. Also note, you only get one opportunity to apply for a loan, according to Ami Kassar, founder and CEO of MultiFunding, a small-business loan adviser based in Ambler, Pennsylvania.

If you do receive any notices like this, the Treasury Department recommends contacting the FBI.”

2. Don’t Pay for the Privilege of Applying

The CARES Act is set up in such a way that there are no closing costs. You won’t have to pay any application or package fees, either. So if someone claims they can get you a loan faster if you just cross their palm with silver – run the other way.

Federal Funding COVID-19 Scams Credit Suite

Want to review your options with one of our consultants? Give us a call at 877-600-2487.

3. Don’t Work with Unknown Lenders

The SBA is relaxing a number of its rules. But even though a lender does not have to be a preferred lender, they do need to have applied for preferred lender status. So, as Inc. suggests, try working with your local bank first. That is, a bank with which you already have a relationship.

It will be a lot more difficult for a local bank with a brick and mortar presence to skip town than an online lender you have never heard of before.

But can online lenders participate? At the time of writing of this blog post, not yet. But they’re trying.

Online FinTech Lenders Are Looking to Be a Part of the Federal Funding Bailout

Recently, 22 fintech lenders sent a letter asking to be allowed to take part in the Paycheck Protection Program. They wrote to Majority Leader McConnell, Minority Leader Schumer, Speaker Pelosi and Minority Leader McCarthy, saying:

“We seek no gain from this crisis. Our only aim is to protect the millions of small businesses that we are proud to call our customers.”

The signatories to the letter were online lenders we’ve heard of and even reviewed before.

Signatories Already Reviewed by Credit Suite

We like Fundbox, and in the interests of full disclosure, we work with them. Check out our most recent review of Fundbox.

Check out our Bluevine Capital Inc. review for how we feel about them. Our Credibly review may help you decide how you feel about this lender – assuming they can get approval from the SBA.

And take a look at our review of Fundera for more information. Take a look at our Funding Circle review for all the details.

Check out our latest Kabbage review for what we think of them. Our Lendio review should be helpful to you. Plus our OnDeck Capital review can help you get acquainted with this online lender.

Signatories We Haven’t Reviewed Yet – But Will!

Biz2Credit is based in New York City. BFS Capital is another New York City-based fintech company. Enova International is based in Chicago. Faire is devoted to working with crafters. FiveStars supports local businesses. FundRocket is based in San Francisco.

GetUpside is an app company working with businesses and consumers. They’re in Washington, DC. Homebase is another San Francisco-based company. They make time management and scheduling software. LendingTree is a marketplace for small business loans, mortgages, and more. They are based in Charlotte.

Middesk provides business analysis. Plaid helps companies with business finance management. SevenRooms provides data-driven operations and marketing for restauranteurs. Signpost works with small businesses on their customer communications, brand reputations, and marketing outreach. Thanx provides CRM software to restaurants.

Veem provides a payment network system. They work internationally, so if your business does international commerce, they can help you get paid by folks in Lithuania who owe your business money. Wisely provides a fully integrated host stand, marketing automation, and guest sentiment software suite for growing restaurant brands. And Womply provides CRM and reputation management software.

4. Don’t Buy into Fast Promises

Unfortunately, there are a ton of predatory lenders out there. Avoid falling prey to them!

According to Inc.:

“If a company or person is telling you they can get you an SBA loan under the new PPP in a matter of hours, steer clear. Lenders are still waiting on guidance for how to process these loans. The application is expected to be available starting April 3.”

And remember to always verify what you read with information directly from the government or a reputable company. Don’t believe it unless and until you can verify.

Federal Funding COVID-19 Scams Credit Suite

Want to review your options with one of our consultants? Give us a call at 877-600-2487.

Federal Funding and Federal Oversight

On April 2, 2020, Speaker of the House Nancy Pelosi announced the formation of a committee to oversee the Trump Administration’s handling of the $2 trillion relief package. And that includes the SBA’s Paycheck Protection Program. This committee is actually concerned with the novel coronavirus itself. Its oversight function exists alongside a function to check the latest science to be sure responses are logical and can save the most lives.

Per CNBC, Speaker Pelosi “said the committee ‘will root out waste, fraud and abuse’ and ‘protect against price-gouging, profiteering and political favoritism.’”

CNBC further notes, “Congress [has] added an inspector general and congressional oversight posts to monitor how Treasury Secretary Steven Mnuchin uses the money. The law also includes limits on stock buybacks, dividends and executive compensation for companies that receive taxpayer bailout money. “

But will this oversight be enough? The jury is still out.

Federal Funding, COVID-19, and Scams: Takeaways

As this situation continues to unfold, we will no doubt see changes. Nuances and details are likely to need updating. So be sure to check out our Paycheck Protection Program information page as we will be updating it with the latest. Once we know it, you will.

We’re all in this together. And we hope you can steer clear of scams and cheats.

The post Federal Funding, the Coronavirus, and Avoiding Scams appeared first on Credit Suite.