Fast-growing product companies have been increasing their credit lines much faster than fast-track service companies, according to Coopers & Lybrand.
In late December the Big Six accounting firm interviewed chief executives of 434 companies that were among the fastest growing in the past five years. Annual sales ranged from $1 million to $50 million.
On average, companies that make or sell products increased credit lines in the fourth quarter to 22% above the third-quarter level, Coopers & Lybrand found. And 38% of them obtained bank loans in the quarter.
The executives cited slack demand, shrinking profit margins, and sluggish revenue growth.
Service firms had increased their credit lines by 16.3%, and 27% had obtained bank loans, according to the survey.
Product companies were turning to credit at a time when they were relatively gloomy about the economy and their margins.
For instance, 49% expected slack market demand to be a barrier to growth in 1996, a far greater proportion than among their service peers, the survey said.
Profits were higher than a year earlier for 28% of the product companies and lower for 20%. Thirty-two percent of the service companies had higher profits, 13% lower.
Product firms also had lower expectations for revenue growth than their service peers, with 26% expecting growth, compared with 31% among service companies, according to Coopers.
The survey also had some bad news for banks: More credit business from high-growth companies seemed likely to go elsewhere.
Twelve percent of the fast-growth firms obtained nonbank financing in 1994, Coopers' yearend survey that year found. But the 1995 survey shows 15% will consider private placements of stock this year, 14% will consider turning to private investors, and 8% will weigh venture-capital financing.
"We're finding there is reliance upon nonbank funding by a number of these companies," said Peter Collins, director of entrepreneurial advisory services at Coopers.
"Perhaps better due diligence by banks would help identify companies that have a better potential," Mr. Collins said.
"Then banks could somehow lock them in and preclude the need for them going to other sources."
