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Businesses must adapt to market conditions: Grow Finance

by Adrian Suljanovic10 minute read

Businesses and consumers need to stay in the know to navigate the impact of rising rates, the business lender’s chief executive has said.

The CEO of business lender Grow Finance, David Verschoor, has provided his perspective on the current economic environment, following 12 interest rate hikes and the associated implication for the asset finance industry.

Mr Verschoor stated as there’s a possibility for interest rates to rise again, lenders will look to adjust their pricing to maintain their profit margins, with the challenge faced by such companies is deciding on how far ahead they should purchase blocks of money at a fixed rate.

This was also the case as the three-year swap rate increased from 1.73 per cent in March 2022 to 4 per cent in December 2022 before hitting a peak of 4.3 per cent by the end of June.


During these (interest rate) swaps, the lender would normally agree to pay a fixed-rate payment, against receiving the variable interest payments over the period of its receivables,” he said.

“This enables lenders like Grow Finance, to secure fixed funding for specific terms to match their finance agreement durations. The rates for these swaps are determined based on the market’s expectations of future interest rates.

Mr Verschoor added that, with rapidly changing swap rates, the lender has seen frequent changes in asset finance cost of funds, which has made it difficult for lenders to hold prices static.

“Although the cost of funding is a significant factor, other factors that impact end prices paid are lenders’ own cost of funds and bad debt prices,” he said.

Despite interest rates seemingly reaching its plateau, the asset finance industry continues to face hurdles in managing pricing and profit margins while providing finance to support a customer’s best interests.

Mr Verschoor stated the moderation in inflation and three-year swap rates “could indicate the beginning of a more normal and stable” environment in lending verticals.

“It’s crucial for businesses and consumers to stay informed and adapt to changing market conditions to effectively navigate the impact of rising interest rates,” he said.

He further warned that while current rates are low relatively, businesses and consumers alike should be cautious as rates may not fall below 3.75 per cent any time soon.

“By remaining vigilant, businesses and consumers can make informed decisions to mitigate risks and seize opportunities in this evolving landscape,” Mr Verschoor concluded.

[RELATED: Grow Finance appoints new BDM partner]

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