There are many reasons why changing a business name is necessary. 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.
When it comes to financing, a name change is not a good idea and should be avoided. Even if the business can prove it is the same company and only the name was changed, this explanation has always been looked at warily by lenders. Often lenders see a name change as a new business.
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.
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.
For instance, change Alley Pizza to Back Alley Pizza or Alley lane Pizza. Not Jim’s World Pizza. If the name change is wholesale, it looks like owners have changed hands.
FAQ Frequently asked questions on changing the name of my business.
Will we have problems if we change our business name?
Existing customers may not recognize the new name of the business. You may also have to start an entirely new business with the secretary of state. This causes your business to be totally new legally and the time in business under the old name stops.
I bought an existing business. Should I keep the old name?
Keeping the old name makes your name recognition and branding much easier. You can have the full time in business under the old name and the time in business of your new name. Getting loans and establishing business relationships will be easier.
What should I do if I have to change our business name?
Contact your existing customers and let them know what the new name of the business will be. Explain the reason for the change. Create marketing materials to use at your place of business for your current customers to see. Contact the Secretary of State and try to change the name of the existing business profile listing without creating a new profile. You may be able to keep the full time in business under the old name with the Secretary of State.
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.