For fast-growing small businesses, interest rates on new bank loans fell sharply in the first quarter, according to a Big Six accounting firm's survey.
Their new loans averaged 9.28%, 78 basis points less than for the first quarter of 1995, according to a just-completed Coopers & Lybrand study. The firm studied 434 fast-growing companies with annual revenues between $1 million and $50 million.
Allan Bloomquist, senior vice president of Oxxford Information Technology and a small-business expert, credited the drop to past Federal Reserve decisions to cut rates and to market pressure.
"The fact that rates are down is a function of the Federal Reserve as well as a function of supply and demand, with the banks having excess lending capacity," he said.
Those companies in the survey group having fewer than 100 employees paid higher rates than did their larger brethren, 9.43% compared to 9.01%, the survey said. Meanwhile, product-sector firms, such as manufacturers, paid 9.44%, 40 basis points higher than service companies did.
Smaller companies pay more because they are considered riskier credits than bigger outfits, Mr. Bloomquist said. Growing companies, which need cash for big-ticket equipment, frequently are more highly leveraged with multiple creditors than are their service peers, he added. Therefore, they are seen as being at greater risk.
The 35% of fast growing companies that borrowed in the first quarter held steady from a year earlier, according to the survey. But the figure was up slightly from the 32% to 33% in effect since last June.
"The fast-growing companies are the ones that borrow, not the smaller ones," Mr. Bloomquist said. "They need to expand."
Product-sector firms borrowed more than their service peers, 38% compared to 30%, the survey said.
Coopers also said that fast growing firms are, on the whole, bullish about the economy's direction. Fifty-nine percent feel positive about the country's economic outlook, and 63% of the companies plan to make capital investments.
"I'd say it's a good story for the economy," said Peter Collins, director of entrepreneurial advisory services for Coopers. "There's confidence in the economy, plans for major new investments of capital that have to bolster the economy, and confidence by bankers that loans will be repaid."