Stagnant rates, rising cost of funds are top lender concerns

HUNTINGTON BEACH, Calif. — Stagnant interest rates and rising costs of funds are top of mind for lenders attending the second annual National Equipment Finance Association spring conference.  

Small-, mid- and large-ticket lenders alike all expressed concern about credit quality and the impact of high interest rates, as well as the rising cost of funds.  

While interest rates remain out of lenders’ control, there are ways to mitigate risk, Adam Ruchim, managing director at Chicago-based CIBC U.S., told Equipment Finance News at the event.   

Ruchim said his bank checks whether a potential business customer has “appropriate interest mitigations in place, and that can come in a number of different permutations.” He usually asks whether companies “have hedging strategies to suppress the impact of interest rates.”  

“We do expect there to be credit tightening,” said Ruchim, one of the 375 attendees at the conference, adding that affordability of equipment also remains a concern.  

Austin Ward, business development executive at Houston-based Gulf Coast Business Credit, told EFN that his mid-ticket lending firm is keeping a keen eye on interest rates.  

“When the Fed wants to turn the spigot back on, it can cut rates,” Ward said. “Last Fed meeting they said we’re going to get three [rate] cuts this year. I think that’s aggressive. By the end of the year, inflation has been a little sticky … it’s better to keep rates where they are, if it’s not killing the economy.”  

Regarding what lenders are paying to access bank funds, Kit West, business development executive at trucking lender C.H. Brown, said he’s noticed a rise.  

“The cost of funds has gone up because the bank, the cost of their money has gone up, and the cost to get money in deposits has gone up,” he said.  

West added that this is in part because banks have to offer higher interest rates on savings to be competitive. With these rates notching close to 5% at some banks, that’s pushed costs to borrow higher.  

“Now banks can be competitive, they need to be paying you four or 5% interest,” West said. “It all goes back to the cost of funds to buy money.” 

Registration is now open for Equipment Finance Connect, the nation’s only dealer-centric equipment lending and leasing event, which will take place May 5-7 in Nashville, Tenn. Learn about the event and free dealer registration at EquipmentFinanceConnect.com.