Asset Based Loan

Is a new business location considered a higher risk to lend to?

You have moved your retail business to a new location.   Is this considered a higher risk by a lender, when it comes to a business loan request?   It could be a short time in business in addition to a new location.   How risky does the lender see these situations?

For many types of business loan requests, especially for retail businesses, it is considered an elevated risk if the business has just changed locations.

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Some of the reasons are that retail businesses typically have an established clientele in the previous location, which typically is a loyal local clientele.    If they just move and are not adding a second location, there is a significant risk that the clientele will not follow them to the new location if it is too far away and too inconvenient.    Even if the business had a very loyal following in the previous location, the customer’s willingness to travel greater distances and endure inconveniences is anything but assured.

The new location may not have been researched thoroughly by the business prior to moving.    What may seem like a good location may not have good customer traffic in the weeks and months after opening the new location.

For franchise businesses, the research, including block statistics, business success rates, and other factors have been done for the franchisee in advance.   Since most businesses are not franchises, this will not have been done for them and the business owner will have to do this research themselves.

If a new business location was not thoroughly researched in advance and turns out to be a bad choice, the results on sales can be devastating, which is one reason which causes lenders to be risk adverse for business loans in such as situation.   Lenders know that the businesses may have made a misjudgement, or had rosy predictions in advance, which may not turn out.     If the lender makes a loan just after the move and sales slump, the business may not be able to repay the new loan.

As a result, expect lenders to be extremely conservative when it comes to a loan request for a business that has just changed locations, specifically retail, non franchise businesses.

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