The Standard Industrial Classification Codes, or SIC Codes, is a United States-specific numerical classification system that is assigned to every individual business listing. It should not be confused with the newly emerging NAICS Codes, the North American Industry Classification System, which is recognized by multiple countries, including Mexico and Canada.
The SIC was established in 1937, assigning a 4-digit numerical code to an individual business based on a combination of factors and criteria. Government agencies, lending institutions, and several other academic and professional organizations can easily determine the nature of any business listing based on this code, rather than on making assumptions based only on the name of the company. These SIC Codes can become very important regarding tax issues, acquiring financing, and many other areas of business management.
How are the SIC Code Structure Assigned?
The individual digits of each code relate to specific classifications of the business model. The first two digits relate to the major industry in which the business is involved. The next two digits are assigned to more specialized areas within that industry. For example, a business starting with “22” signifies “Textile Mill Products”. Adding a third digit of “7” means that the business listing is operating under the guidelines of an “Electronic, Component, and Accessories” classification. A final digit of “3” narrows the company’s area of expertise down even further to “Carpets and Rugs”.
What are SIC Codes used for?
The code has a variety of uses, but it was initially implemented to help the government track and analyze business growth and development in the United States. 1937 was right in the middle of the Industrial Revolution and at the end of the Great Stock Market Crash of 1929, and business was changing and expanding at a very rapid pace. Today, these codes are used by banking institutions to help determine if a business loan request is a good risk. With so many business listings now operating online, banks are at a much higher risk of the potential borrower defaulting, or taking the bank’s money and running to another country altogether. There are many, many uses for these SIC Codes.
Why are SIC Codes important?
These codes are used by a wide range of important government, academic, and business organizations across the country. The US Census Bureau, the Internal Revenue Service, the Bureau of Labor Statistics, and the Social Security Administration all use these codes in different ways as a method of monitoring industry prices, fluctuations in employee wages and earnings, and the numbers of people working within specific industries. This helps to foresee future trends and obstacles that may be occurring in the marketplace which may or may not affect the national economy as a whole. 1937 was immediately following the Great Depression, and the US government was trying to find a way to better monitor individual business listings and industries in the hopes of preventing another economic disaster in the future. The SIC Codes were a contributing factor that has helped to stabilize the financial infrastructure of the United States ever since.