Step 9: Choose NAICS Codes Wisely
The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies. You choose your NAICS code on the IRS website.
There are inherent issues in every single industry. However, those listed under certain NAICS codes are considered riskier than others. It doesn’t matter if the business is prospering, they are still considered a risky business. Usually higher risk comes from chances of injury or frequently engaging in cash transactions, or a low barrier to entry.
The IRS, lenders, banks, insurance companies, and business CRAs use NAICS codes. They are trying to determine if your business is in a high-risk industry classification. The NAICS puts out a list of high-risk and high-cash industries. Higher risk industries include casinos, pawn shops, and liquor stores but the NAICS list is old and has not been updated in years.
Why Risk Matters
When it comes to funding, risk matters big time. There are several industries where lending institutions are hesitant to do business. In those particular cases, there are stricter underwriting guidelines. In contrast, some industries are considered so risky they are automatically denied.
Those businesses are left looking for other business funding solutions.
These can include:
- Crowdfunding
- Angel investors
- Venture capital
- Business credit building and more
Using a Different NAICS Code
Of course you want to be impeccably honest when it comes to selecting your NAICS code. Still, if more than one can apply, you don’t have to choose the one that’s higher risk. It pays to check and be careful when making your selection.
If only high risk codes apply, there’s nothing at all wrong with changing your business to match a related but lower risk code.
Step 10: Be Consistent!
A big reason for many credit and loan denials is inconsistent business information. This makes it hard for the lender to locate a business offline or online. It also sets off fraud alarms in the minds of those making lending decisions.
To avoid this, make certain your business name and other information is the same everywhere. That includes incorporation papers, licenses, utility statements, and bank statements among other things.
If you change your business name, be sure to change it everywhere.
This means you change it in these places, among others:
- Your website
- 411 listing
- Your records with the business CRAs (D&B, Experian, and Equifax)
Minor details such as using an ampersand in your name in one place and the word “and” in another can cause a lot of problems. Be careful and consistent with all business information.
First Funding Options
While you are working on setting up your business, you are going to need funding. If your business setup is not yet conducive to fundability, you’ll need to pursue some alternative options. One great possibility is the Credit Suite Credit Line Hybrid.
Credit Line Hybrid
A credit line hybrid is a form of unsecured funding. Our credit line hybrid has an even better interest rate than a secured loan. You can get 0% business credit cards with stated income, and many of these report to business CRAs. That means you can build business credit at the same time.
This will get you access to even more cash with no personal guarantee.
Credit Line Hybrid: Terms and Qualifying
You need a credit score or a guarantor with a credit score of at least 700. There is no requirement for financials, and you can often get up to $150,000. Be aware, some cards may report on your personal credit.
Business Setup for Fundability
Honestly, you cannot build a fundable business without first having a fundable foundation. This is what the business setup is all about. All other aspects of fundability hinge on the foundation, so don’t neglect it. Don’t skip it. If your business is already operating and you need to backtrack to make this happen, do it now. The sooner the better.