There are many reasons why a business may decide they want to change the company name. Sometimes the reasons are due to expansion, for good reasons, and also for not so good reasons, such as solving an image problem by finding a new name. An example of large Corporate name change for a bad reason could be Valujet. Valujet suffered a major crash in the Florida Everglades in the late 1990′s and primarily for this reason, changed their name to Airtran.
When it comes to financing, a name change is not a good idea and should be avoided. Even if the business can provide evidence it is the same company and only the name was changed, this explanation has always been looked at warily by lenders. To lenders, a name change is looked at as almost a new business, or at least to a large extent, a new business, whether it is or not.
This hurts significantly in a financing request because if a company has been in business for 7 years, and changes the name in the last 2, it will almost look to a lender like the business is 2 years old. Another factor in how the business is looked at is what the business credit report says. If the business credit reports have the old company name, this will hurt. If the business credit reports have the new company name and the business start date shows the full 9 years in business, this scenario will be penalized far less severely.
One answer would be to only somewhat change the business name, if possible. For instance, if the company name is Alley Pizza, it would be better to change to Back Alley Pizza or Alley lane Pizza rather than Jim’s World Pizza. If the name change is wholesale, it looks like owners have changed hands.
In summary, if a business wishes to change it’s name, the owners should consider if financing is in their plans in the following 2 or 3 years, and if so, this should be factored into the decision if the name is changed, and what it is changed to.