Growth Companies Lean More on Loans
NEW YORK -- Growth companies are becoming more dependent on credit as their customers increasingly delay payments, according to a survey by Coopers & Lybrand.
The accounting firm's survey, the first of a quarterly Trendsetter Barometer series, showed that 93 of the companies, or 40%, had recently obtained bank loans, and that 23% had obtained longer credit terms from their own suppliers.
One-third of the companies' chief executives said their availability of credit increased in the quarter; 7% said theirs fell.
The evidence of wider credit availability runs counter to surveys by the Federal Reserve Board that have cited tighter business credit or more restrictive terms in many areas.
The Coopers & Lybrand survey reached CEOs of fast-growing manufacturing and service companies whose median revenue was $6.4 million and median number of employees 50. Coopers collaborated on the effort with Business Science International, a New York-based consulting and research firm.
Of the 232 CEOs who responded, 36% said that in the third quarter bills they submitted were paid in 51 days, on average - 9 to 10 days more slowly than in the second quarter. Customers stretched out payment more to companies with fewer than 100 employees than to larger ones.
Slower collection of receivables "clearly worsens a company's liquidity, particularly in view of the reluctance today of some banks to extend additional credit," said Daniel J. O'Brien of Coopers' emerging businesses group. "Smaller companies, especially, must flex more muscle in their collection efforts just to stay even."
In borrowings, companies employing less than 50 tended more toward short-term bank loans than did companies employing 100 or more, which had more longer-term financing.
Smaller growth firms paid higher interest rates: 10.13% for firms employing less than 50, 10.09% for those employing 50 to 99, and 9.56 percent for those employing 100 or more.
As a group, the companies paid an effective interest rate of 9.96% percent for new bank loans, 1.46 points over the prevailing 8.5% prime.