When’s the right time for a business name change?
By Nina Kaufman, Esq.Q.: I recently started a limited liability company but have not purchased a company with it yet. I also haven’t set up any credit accounts or bank account for it. My goal is to establish good business credit, which may in part assist me in purchasing a business. Would undergoing a business name change for LLC affect any potential business credit? If so, should I just start a new LLC? What are the positives and negatives to a business name change?
A.: Any time you form a new company, you are, essentially, starting from scratch in building up the business credit associated with that company. If you don’t have a bank account or any other credit accounts associated with that new company, it will be very hard for you to develop any showing of credit-worthiness.
In addition, if your goal is to build up business credit in one entity, forming a new one would seem counterproductive, as you’d only have to start all over again with that new entity. The name of the company alone is not really a factor in determining the credit-worthiness of a company.
What could be a factor is the nature of the business you current have (and for which you’re trying to build the credit) and whether that’s similar to the business you want to buy. If not, any proposal you make to the bank to obtain a loan or other line of credit will have to explain why you and the company are a “safe bet” in this new line of business.
You’ll want to sit down with your banker (assuming you intend to apply for bank financing) to get to know their criteria for offering financing when it comes to buying a business. You may well need it if your new company doesn’t have enough assets on its own to purchase a business. Be sure to have worked out some kind of business plan, as that will give you banker some degree of comfort level that you have a sound strategy for using the money and repaying it.
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