Tag: Codes

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.

High Risk NAICS Codes

What are High Risk NAICS Codes?

High risk NAICS codes can be the difference between getting business funding … or not. But what are they?

What Do High Risk NAICS Codes and Names Have to Do with Funding Denials?

There are certain industries that are perceived by lenders as extra risky. If your business appears to be part of one of these industries, you could be looking at automatic denial. At the least, you may be subject to stricter underwriting, as well as higher rates and less favorable terms.

Lenders make a judgement of what industry your business is in based on a couple of things. First, they look at your business name. Then, they look at your business code. This could be either SIC or NAICS codes

So, your job becomes finding a way to keep from getting a denial automatically, based on your industry code or business name. Yet, you still have to be honest. Integrity is of the utmost importance and lack of it could cause future denials and even criminal charges.

What are High Risk NAICS Codes?

The North American Industry Classification System (NAICS) is a somewhat recently instituted business classification system. It is used to classify business establishments, and collect , analyze, and publish statistical information related to the economy of the United States.

High Risk SIC Codes vs High Risk NAICS Codes

For each NAICS Code there may be multiple SIC codes, as SIC codes break down more specifically.

For example, there are over 30 SIC codes under the Engineering Services code of 8711. The NAICS code for Engineering Services is 541330. While the plan is to fully switch to the NAICS system, many industries still have the old SIC system deeply ingrained. For this reason, the switch hasn’t happened exactly as planned, and currently both systems are in place.

What are SIC Codes?

SIC (Standard Industrial Classification) is a part of a business classification system. It’s a four digit number that the US government assigns to businesses. It makes it easier to identify the primary activity of the business. Lenders and others use it as an indicator of the kind of business a company is in.

The Securities and Exchange Commission (SEC) developed the SIC Code system. The first four digits signify the general industry of a business. For example, 8711 refers to Engineering Services. Then, numbers add to the end of this 4 digit chain to add specificity.

For example, 817701 is Naval Architects, while 871103 is Engineers-Agriculture. And 871105 is Contractors- Engineering General. There are over 30 individual codes under the 8711 Engineering services code.

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

Key Differences Between SIC and NAICS Codes

  • SIC Codes: Developed solely by the U.S. government
  • NAICS: Developed in conjunction with the U.S., Canadian, and Mexican governments
  • SIC Codes: Groups together establishments in terms of either demand or production
  • NAICS: Groups together establishments that use the same or similar processes to produce goods or services
  • SIC Codes: Active use for business targeting in the private sector
  • NAICS: Active use for government statistical purposes

High Risk NAICS Codes and the IRS

You choose a SIC code to report to the IRS. They will use it to determine if your business tax returns are comparable to other businesses in your industry. If your deductions aren’t reasonable when compared to other businesses in your industry, as determined by SIC code, you could be audited. Therefore, choosing the right SIC code with the IRS is essential. NAICS codes are going to replace this system soon.

High Risk NAICS Codes and Your Business

Certain codes are associated with industries posing more risk than others. If you happen to choose one of these high risk codes unnecessarily. You may get a funding denial. If you understand how the system works, you can choose the best code the first time.

Some examples of high risk industries include:

  • casinos
  • pawn shops
  • liquor stores
  • automotive dealers
  • even restaurants

As with any business aspect, risk must be taken into consideration. Each industry code has its own inherent issues. Still, some industries are thought to be riskier than others by their very nature.

An industry may be seen as risky if there is a high chance of injury, either to workers or to customers. Or it may be considered risky if there is a high chance of theft. This is true despite how the business is doing, and despite its safety record or the accuracy and dependability of its security system. Even if a business is doing great, it could be seen as risky simply due to the nature of the industry.

High Risk NAICS Codes and Funding

So, if your SIC code or NAICS code indicates your business is part of a risky industry, what does that mean? The main issue is that it could make it difficult to get funding for your business. There are several industries that lenders are hesitant to lend to. Some of these industries are subject to stricter underwriting guidelines. And some cannot get funding at all.

In these cases, the business must seek out other funding options. These options could include:

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

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

What’s the Solution for Getting Funding with a Risky NAICS Codes?

It’s key to remember, you get to choose your SIC code. While you want to be honest, you can be general. You do not have to be more specific than necessary. For example, restaurants are risky, but if you also sell boutique items, you can use a SIC code related to that. If more than one SIC code can apply, be sure to choose the one that is the least risky in the eyes of lenders. There is nothing underhanded or unethical about doing so.

Bonus: Business Names and Risk

As already mentioned, your business name can indicate risk. That is, if it indicates you are part of a high risk industry. For example, auto sales is considered a risky industry. You do not have to name your business “Joe’s Used Auto Sales”. You can just name it “Joe’s” and be done. There is nothing unethical or underhanded in doing this, either.

Codes and Names Are Not the End Game

Of course, choosing a SIC code and name that does not indicate risk isn’t a guarantee of funding. There are many other factors that go into a lender’s funding decision including fundability. However, if you choose the wrong code or business name, the lender may never see how fundable your business really is.

What are Some High Risk Industries?

    •  Auto, RV or boat sales
    • Computer and software related services including programming
    • Dry cleaners
    • Gas stations or convenience stores
    • 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 subdividers
    • Restaurants or drinking establishments
    • Taxi cabs
      • This includes the purchase of cab medallions
    •  Travel agencies

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

How Else are SIC and High Risk NAICS Codes Used?

Currently, both codes are in use. Not by banks just to determine whether or not to lend. Other ways agencies use these codes include:

    • The Department of Revenue may use them for legislative purposes
    • They can be used to extend government offered incentives
    • To keep taxpayers within a specific industry aware of changes to laws. These codes are used by the IRS for multiple purposes:
    • To determine product classes in retention to exchanges of property or depreciation
    • For comparative purposes, for example, if your information doesn’t track with others under your code, it could flag you for an audit
    • These are just examples, there are too many to list

And they can be used by the SBA categorize your business. This is especially true when it comes to applying for government contracts. You must meet size standards for contracts, and the SBA assigns a specific size standard to each NAICS code. The SBA also uses NAICS codes to determine eligibility for the Women-Owned Small Business Federal Contracting program. They keep a list of qualifying codes.

High Risk NAICS Codes: Takeaways

Businesses need funding, but if your business is perceived to be a part of a risky industry, you may get a denial. SIC Codes, NAICS Codes, and Business Name all contribute to the risk perception of lenders. Choosing the wrong code or name for your business could get you an unnecessary automatic denial for funding.

The post High Risk NAICS Codes appeared first on Credit Suite.

Standard Industry Classification Codes in a Recession – Which Get You Denied?

Standard Industry Classification Codes in a Recession – Which Will Get a Business Funding Denial?

Do you know which Standard Industry Classification codes in a recession will get you denied?

A Standard Industry Classification – SIC Code – may or may not be vital for SBA Paycheck Protection Program funding. Yet it is certainly important when it comes to other types of funding.

But before we go any further, just what is a Standard Industry Classification code, anyway?

Standard Industry Classification Codes in a Recession: SIC Codes

The SIC Code (Standard Industrial Classification) is a part of a business classification system.

A Standard Industry Classification code, or SIC is a four digit numerical code which is assigned by the U.S. government to businesses, to make it easier to identify the primary activity of the business. It is an indicator of the kind of business a company is in.

The Securities and Exchange Commission developed this system. For example, if your company makes tires and/or inner tubes, then your SIC code would be 3011. The numbers are somewhat intelligent. There are ranges of industry groups which correspond to the first of the four digits Such as manufacturing corresponds to four-digit SIC codes which start with either a 2 or a 3.

Details

The combination of the first and second digits then defines the major industry group. In our example, 30 will designate ‘Rubber and Miscellaneous Plastic Products’.

The SIC code’s digits are grouped to identify the industry and industry group. The first two digits in the SIC code identify the major industry group. And the third digit identifies the industry group. Finally, the fourth digit identifies the industry.

In fact, the Internal Revenue Service will use the SIC code that you select. This is in order to determine if your business tax returns are comparable to the other businesses in your industry. Hence, if your tax deductions do not reasonably resemble the other businesses in your industry, your business could be audited.

Furthermore, some companies may be labeled high-risk when they do not select the right SIC codes to classify their company. However, if you understand how the business classification system works, then you can choose the correct code on your first try.

Standard Industry Classification Codes in a Recession Credit Suite

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business. Get money even during the worst of a recession.

Standard Industry Classification Codes in a Recession: NAICS Codes

The North American Industry Classification System (NAICS) is another business classification code.

This code classifies business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. economy. NAICS industry codes define establishments based on the activities in which they are primarily engaged.

The NAICS puts out its own list of high-risk and high-cash industries. Higher risk industries on the list include casinos, pawn shops, and liquor stores, but also automotive dealers and restaurants.

OSHA requires injury and illness reports from certain high-risk industries.

Restricted industries (automatic decline) include:

  • Ammunition or Weapons Manufacturing; wholesale and retail.
  • Bail Bonds
  • Check Cashing Agencies
  • Energy, oil trading, or petroleum extraction or production
  • Finance: (Federal Reserve Banks, foreign banks, banks, bank holding companies,
    loan brokers, commodity brokers, security brokers, mortgage brokers, mortgage bankers, mortgage companies, bail bond companies, or mutual fund managers).
  • Gaming or Gambling Activities
  • Loans for the speculative purchases of securities or goods.
  • Pawn shops
  • Political campaigns, candidates, or committees
  • Public administration (e.g., city, county, state, and federal governmental agencies).
  • X-rated products or entertainment

High-Risk Industries (subject to stricter underwriting guidelines):

  • Agriculture or forest products
  • Auto, recreational vehicle or boat sales.
  • Courier services
  • Computer and software related services.
  • Dry cleaners
  • Entertainment (adult entertainment is to be considered restricted).
  • General contractors
  • Gasoline stations or convenience stores (also known as c-stores)
  • Healthcare; specifically nursing homes, assisted living facilities, and continuing care retirement centers.
  • Special trade contractors
  • Hotels or motels
  • Jewelry, precious stones and metals; wholesale and retail.
  • 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.
  • Software or programming companies
  • Taxi cabs (including the purchase of cab medallions) .
  • Travel agencies

Standard Industry Classification Codes in a Recession: Which Code is in Use?

They both are. However, the SIC code system is phasing out and NAICS will replace it. But for the moment, assume they are both in play, as the transition has not yet finished. These coding systems are similar but not identical.

Lenders, banks, insurance companies and business CRAs use both business classification systems. So this is to determine if your business is in a high-risk industry classification. Hence you could get a denial for a loan or a business credit card based on your business classification. Some SIC codes can trigger automatic turn-downs, higher premiums, and reducing credit limits for your business.

Standard Industry Classification Codes in a Recession Credit Suite

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business. Get money even during the worst of a recession.

Standard Industry Classification Codes in a Recession: Risks

When considering any aspects of a business, risk has to be a major factor. There are inherent issues in every single industry. Crops fail, or lease terms go up too high so a company has to move. Or tariffs or even a war make importing less reliable.

But some businesses are considered to be risky by their very nature. And 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. Therefore, even if your business doesn’t feel risky, it just might be anyway.

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.

Not so with other industries. 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, potentially, 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 magnitude of risk coming from?

Standard Industry Classification Codes in a Recession: Real Injury Risks According to the CDC

In 1999, the Centers for Disease Control published an article on risks in small businesses. This article contains information on SIC codes. And it gives information on injuries associated with the codes. While this is not the true means by which lending institutions decide on risk, it is still of interest. And it can demonstrate what may be behind some of the reasoning.

Part of the calculation of risk comes from occupational injuries.  These are such as those noted in the CDC report. 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 that it can be a tempting target for thieves.

Standard Industry Classification Codes in a Recession: Choosing Better SIC Codes

The choice of SIC code is yours. For automotive sales, for example, you would normally select 5511, ‘Motor Vehicle Dealers (New and Used)’. But most lenders will automatically turn your business down because of the high-risk factor within the business classification name. Of course you want to be honest with your SIC coding classification. But if more than one SIC code could apply, try this. There is nothing wrong with choosing the SIC code which will not get you denied by lenders.

Ideas

Therefore, if you want to have your automobile sales company, do this. You need a business code with auto and home supply stores, motor vehicle parts and accessories, or car washes written in the actual business code. That way, you can still operate your real business of “automotive sales” without actually being considered a risk factor.

There is nothing deceptive or dishonest about doing this.

Check the SIC code database for more information on these codes.

SBA PPP Loans in a Recession Credit Suite

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business. Get money even during the worst of a recession.

Standard Industry Classification Codes in a Recession: Choosing Lower-Risk Business Names

It goes beyond coming up with the perfect memorable name which is easy to spell and say. Even beyond evoking your company’s mission statement, there’s more. There’s also the matter of risk. Adding a risky business type into your business name will trigger financing denials.

For example, bail bonds are a restricted industry. So are many types of financing business types, and check cashing agencies. Hence naming your venture Chico’s Bail Bonds is a recipe for a delay if not an outright denial.

But it is the same as with choosing a lower-risk SIC code when two apply. There is nothing deceptive, illegal, or unethical in naming your company Chico’s.

Will this more generalized name 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 your case for funding.

Standard Industry Classification Codes in a Recession: Takeaways

Choosing the incorrect Standard Industry Classification codes in a recession could end up costing your business. And it could get you labeled as high-risk. And this could directly impact your insurance premiums, your financing ability, and even your credit limit recommendations.

This small error of choosing the wrong SIC codes could cost your business in the future. Therefore, be sure to do your research before you select any SIC codes for your business. Because you might just end up choosing which SIC codes get you denied. And it does not have to be that way.

 

 

 

The post Standard Industry Classification Codes in a Recession – Which Get You Denied? appeared first on Credit Suite.

Risky SIC Codes in a Recession: The Ugly Truth of Risk and Skittish Lenders

Risky SIC Codes –Will Your Business Be Denied Funding?

All businesses can potentially have problems getting loans during a recession. This is the nature of an economic downturn – funding tends to dry up. Higher-risk businesses have problems even in the best of economic times. But when you put them both together, you get risky SIC codes in a recession.

If funding possible at all? While SIC codes may or may not matter for SBA Paycheck Protection Program funding, they do matter elsewhere.

Do you know which SIC codes get you denied? But before we go any further, just what is a SIC code, anyway?

Risky SIC Codes in a Recession: SIC Codes

The SIC Code (Standard Industrial Classification) is a part of a business classification system.

A Standard Industry Classification code, or SIC is a four digit numerical code which is assigned by the U.S. government to businesses, to make it easier to identify the primary activity of the business. It is an indicator of the kind of business a company is in.

The Securities and Exchange Commission developed this system. For example, if your company makes tires and/or inner tubes, then your SIC code would be 3011. The numbers are somewhat intelligent in that there are ranges of industry groups which correspond to the first of the four digits, such as manufacturing corresponds to four-digit SIC codes which start with either a 2 or a 3.

The combination of the first and second digits then defines the major industry group. In our example, 30 will designate ‘Rubber and Miscellaneous Plastic Products’.

The SIC code’s digits are grouped to identify the industry and industry group. The first two digits in the SIC code identify the major industry group, the third digit identifies the industry group and the fourth digit identifies the industry.

The IRS

In fact, the Internal Revenue Service will use the SIC code that you select. This is in order to determine if your business tax returns are comparable to the other businesses in your industry. Hence, if your tax deductions do not reasonably resemble the other businesses in your industry, your business could be audited.

Furthermore, some companies may be labeled high-risk when they do not select the right SIC codes to classify their company. However, if you understand how the business classification system works, then you can choose the correct code on your first try.

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Risky SIC Codes in a Recession: NAICS Codes

The North American Industry Classification System (NAICS) is another business classification code.

This code classifies business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. economy. NAICS industry codes define establishments based on the activities in which they are primarily engaged.

The NAICS puts out its own list of high-risk and high-cash industries. Higher risk industries on the list include casinos, pawn shops, and liquor stores, but also automotive dealers and restaurants.

OSHA requires injury and illness reports from certain high-risk industries.

Restricted industries (automatic decline) include:

  • Ammunition or Weapons Manufacturing; wholesale and retail.
  • Bail Bonds
  • Check Cashing Agencies
  • Energy, oil trading, or petroleum extraction or production
  • Finance: (Federal Reserve Banks, foreign banks, banks, bank holding companies,
    loan brokers, commodity brokers, security brokers, mortgage brokers, mortgage bankers, mortgage companies, bail bond companies, or mutual fund managers).
  • Gaming or Gambling Activities
  • Loans for the speculative purchases of securities or goods.
  • Pawn shops
  • Political campaigns, candidates, or committees
  • Public administration (e.g., city, county, state, and federal governmental agencies).
  • X-rated products or entertainment

High-Risk Industries (subject to stricter underwriting guidelines):

Risky Standard Industry Classification Codes in a Recession Credit Suite

  • Agriculture or forest products
  • Auto, recreational vehicle or boat sales.
  • Courier services
  • Computer and software related services.
  • Dry cleaners
  • Entertainment (adult entertainment is to be considered restricted).
  • General contractors
  • Gasoline stations or convenience stores (also known as c-stores)
  • Healthcare; specifically nursing homes, assisted living facilities, and continuing care retirement centers.

More High-Risk Industries

  • Special trade contractors
  • Hotels or motels
  • Jewelry, precious stones and metals; wholesale and retail.
  • 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.
  • Software or programming companies
  • Taxi cabs (including the purchase of cab medallions) .
  • Travel agencies

Risky SIC Codes in a Recession: Which Code is in Use?

They both are. However, the SIC code system is phasing out and NAICS will replace it. But for the moment, assume they are both in play, as the transition has not yet finished. These coding systems are similar but not identical.

Lenders, banks, insurance companies and business credit reporting agencies use the two business classification systems to determine if your business is a high-risk industry classification. This means that you could get a denial for a loan or a business credit card based on your business classification. Some SIC codes can trigger automatic turn-downs, higher premiums, and reducing credit limits for your business.

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Risky SIC Codes in a Recession: Risks

When considering any aspects of a business, risk has to be a major factor. There are inherent issues in every single industry. Crops fail, lease terms go up too high so a company has to move, or tariffs or even a war make importing less reliable.

But some businesses are considered to be risky by their very nature. And 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. Therefore, even if your business doesn’t feel risky, it just might be anyway.

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.

Not so with other industries. 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, potentially, 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 magnitude of risk coming from?

Risky SIC Codes in a Recession: Real Injury Risks According to the CDC

In 1999, the Centers for Disease Control published an article on risks in small businesses. This article contains information on SIC codes. And it gives information on injuries associated with the codes. While this is not the true means by which lending institutions decide on risk, it is still of interest. And it can demonstrate what may be behind some of the reasoning.

Part of the calculation of risk comes from occupational injuries.  These are such as those noted in the CDC report. 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 that it can be a tempting target for thieves.

Risky SIC Codes in a Recession: Choosing Better SIC Codes

The choice of SIC code is yours. For automotive sales, for example, you would normally select 5511, ‘Motor Vehicle Dealers (New and Used)’. But most lenders will automatically turn your business down because of the high-risk factor within the business classification name. Of course you want to be honest with your SIC coding classification. But if more than one SIC code could apply, there is nothing wrong with choosing the SIC code which will not get you denied by lenders.

Therefore, if you want to have your automobile sales company, you need to develop a business code which has auto and home supply stores, motor vehicle parts and accessories, or car washes written in the actual business code. That way, you can still operate your real business of “automotive sales” without actually being considered a risk factor.

There is nothing deceptive or dishonest about doing this.

Check the SIC code database for more information on these codes.

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Risky SIC Codes in a Recession: Choosing Lower-Risk Business Names

Beyond coming up with the perfect memorable name which is easy to spell and say, and evokes your company’s mission statement, there’s also the matter of risk. Adding a risky business type into your business name will trigger financing denials.

For example, bail bonds are a restricted industry. So are many types of financing business types, and check cashing agencies. Hence naming your venture Chico’s Bail Bonds is a recipe for a delay if not an outright denial.

But it is the same as with choosing a lower-risk SIC code when two apply. There is nothing deceptive, illegal, or unethical in naming your company Chico’s.

Will this more generalized name 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 your case for funding.

Risky SIC Codes in a Recession: Takeaways

Choosing the incorrect SIC codes could end up costing your business and get you labeled as high-risk. And this could directly impact your insurance premiums, your financing ability, and even your credit limit recommendations. This small error of choosing the wrong SIC codes could cost your business in the future. Therefore, be sure to do your research before you select any SIC codes for your business. Because you might just end up choosing risky SIC codes in a recession. And those could get you a denial. And it does not have to be that way.

 

 

 

The post Risky SIC Codes in a Recession: The Ugly Truth of Risk and Skittish Lenders appeared first on Credit Suite.