More than a third of fast-growing small to midsize businesses secured bank loans in the second quarter, despite a spike in interest rates, according to a survey of 410 product and service companies.
The percentage of businesses that borrowed is virtually unchanged from the first quarter figure, when interest rates were much lower.
The survey, conducted by Coopers & Lybrand, targeted fastgrowth companies with annual sales of $1 million to $50 million.
The findings confirm anecdotal evidence from bankers that higher interest rates do not seem to be deterring businesses from borrowing.
Indeed, in the face of a series of credit-tightening moves by the Federal Reserve this year, consumer and industrial loans have been growing at a steady pace.
Since February, the Fed has lifted its target rate for federal funds from 3% to 4.75%, while commercial banks have lifted the prime rate from 6% to 7.75% The most recent increase in fed funds and the prime came in August, when both rates moved up half a point.
Business borrowers surveyed by Coopers & Lybrand paid a composite rate of 8.36% in the second quarter, w'hich represents a 1.11% spread over the then-prevailing prime rate of 7.25%.
While the rising prime drove borrowing costs up appreciably in the second quarter, the survey findings confirm what bankers themselves have acknowledged that spread charged over the prime has been shrinking.
Survey respondents paid a spread of 1.34% over the prime rate in the first quarter, or 0.23% more than in the second quarter.
"The continued high level of bank financing among these firms is an indication of their confidence in the overall economy and their particular business," said George Auxier, who directed the Coopers & Lybrand survey.
Product companies were the most active in securing bank loans in the second quarter, while service firms were less so.
According to the survey, 40% of products firms completed a bank loan, compared with just 26% of service companies.
Companies that completed bank financing in the second quarter plan to hire more employees over the next 12 months than those that did not secure new loans, according to the survey.
