Credit remains hard to come by, according to Greenwich Associates' latest survey of small to midsize U.S. companies. In fact, 86% of the smallest companies–those with annual revenue of $10 million or less–told Greenwich in September that it was becoming harder to secure credit in the third quarter, up from the 68% that expressed that view in July.
Among midsize companies, those with annual revenue of $10 million to $100 million, 65% said it was becoming harder to secure credit in the third quarter, unchanged from the view in the second quarter.
The bleaker assessment by smaller companies reflects the fact that banks regard them as riskier, says Chris McDonnell, a consultant at Greenwich Associates. “In large terms, everyone is finding it more difficult to borrow, it's just accentuated for the smaller companies that represent a greater risk for the banks,” McDonnell says. “Overall, the financial health of companies is declining, which is raising their risk profile in the eyes of the banks, who are far more conservative or risk-adverse today than a year ago.”
It turns out, though, that despite their pessimistic view, 46% of the smallest companies had borrowed in the three months preceding the September survey, up from 37% in the July survey.
The Greenwich survey also shows more companies are switching banks or considering doing so in the current economic environment. According to the survey, 25% to 30% of the small and midsize companies have switched banks in the last year. And 60% of the companies said they are looking for new banks or would consider changing banks if they got a good offer; that's up from 40% that said they were open to switching in the second quarter.
Some of the turnover reflects consolidation in the banking industry, McDonnell says. “Other factors include self-preservation,” he says. “There's a sharp decline in the importance of loyalty right now and companies are looking to partner with anybody who will provide them with capital.”
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