Have you taken your banker to lunch lately?

Many entrepreneurs have been so flush in the last few years that they haven't had to hit up their banks, relying on internal cash flow to finance their expansions. But with the international financial crisis finally dragging on the U.S. economy, margins are under pressure for small, cutting-edge companies, and they are turning increasingly to banks for financing, a PriceWaterhouseCoopers survey of 446 high-growth companies shows.

That's a trend that's likely to continue, especially with U.S. monetary policy loosening up for the first time since January, 1996. On Tuesday, Sept. 29, the Federal Reserve cut its benchmark Federal funds target rate by a 0.25 percentage point, to 5.25%.

The PWC study shows that the percentage of companies applying for loans has climbed steadily all year -- to 28% in the second quarter from 24% in the last quarter of 1997.

Why? Pete Collins, director of entrepreneurial advisory services at PWC, says figures from his survey paint a picture of companies with less disposable cash -- and thus a need for more borrowing to finance their expansions. Among the companies surveyed, which were selected for their high rate of growth, a net 18% said gross margins were increasing, compared with 24% in the first quarter of the year. High-tech companies, in particular, says Collins, "have been feeling the squeeze for a longer period of time than their non-tech counterparts, and they have turned to bank borrowing."

HEALTHY VIEW. Some bankers say the PWC study doesn't quite reflect the small-business panorama as they see it. Company execs may just be opportunistic. "For so long, the economy has been doing well, and companies have been profitable and didn't have to borrow on their credit lines," says Elaine A. McMahon, senior vice-president in charge of small-business lending for Comerica Bank. "Many are taking the opportunity, with rates being at lower levels, to get capital expansion loans, mortgage loans, and some fixed-term loans."

Michael R. James, executive vice-president for Wells Fargo small-business banking group, says the Asian crisis is having the opposite effect from what the PWC study implies. His technology-company customers cut back on borrowing when the Asian crisis began hurting their clients. "As volume slows down for them, they tend to shrink their balance sheet. They reduce inventory and collect receivables, and they actually have more cash," James says.

The paradox is that even in a slowing economy -- usually a poor time to borrow -- banks will likely be eager to lend, and terms will be attractive, especially if the Fed keeps cutting rates. That's a notion supported by a broader study of small-business lending by Veribanc Inc., a bank-monitoring company in Woburn, Mass. The study shows that overall small-business lending was virtually stagnant in the year ended June 30, after growing by double digits the previous year. "On the demand side, fewer people are asking for loans," says Warren Heller, Veribanc's research director. Meanwhile, "all the data and the signals we read is that banks are not tightening their credit policies," he adds.

Come to think of it, maybe your banker should take you to lunch.

By Jeremy Quittner in New York
jeremy_quittner@businessweek.com