President’s Message (January 2022)

You’ve undoubtedly heard the phrase, “May we live in interesting times.” These past two years, as the pandemic has wreaked havoc on the small lending community, have definitely been interesting times.

New business has been extremely challenging mainly due to the government’s interference in the market (PPP and EIDL). While PPP money helped many small businesses, there were many who received it and didn’t really need it, so they paid down their borrowing levels.

EIDL were not much better due to the UCC filings and the timeliness of subordinations. I, through our trade association, have been very active in trying to simplify and streamline the subordination of these liens and we have had some success in making lawmakers aware of the issues.

As of the writing of this letter (December, 2021), EIDL are set to sunset at the end of the month but with so many out there, we’ll be dealing with these liens for years to come. I hope they don’t (or didn’t) extend the end-of-year deadline because at that point, at least the bleeding will stop, and we’ll just be dealing with subordinations.

The ongoing effect of everything is still hard to tell. I believe that, generally speaking, from a business standpoint, things will continue to get more back to normal in 2022. But new variants spook people so we’ll have to see what happens. I’m optimistic. 2021 was a better year than 2020 because 2020 had most of the shutdowns. We’ll have to see how 2022 fares; again, what happens with other variants and fallout from supply chain disruptions, labor issues and inflation.

In 2021, regulators told banks not to worry so much about covenant violations. That, and government money flowing in, made banks sit back on deals they would normally exit. I think as they see year-end results, they’ll take a harder look at deals and I expect to see them exiting quite a few in the second and third quarters.

In terms of Celtic Capital, we had a number of clients with PPP and EIDL pay us off. Some, too, have paid us down and are not borrowing so we’re in the process of re-evaluating their continued inclusion in our portfolio. In terms of new business, fourth quarter picked up a bit, so we’ll be adding a new internal person to our staff to handle that volume. We expect to see more significant growth in our portfolio in the second half of the year. Our goal for 2022 is to reinforce the markets we’re in and see more activity than we’ve seen during the last couple of years.

More interesting times ahead? Let’s shoot for more prosperous times ahead.

Wishing everyone a better year!

Mark Hafner
President & CEO
Celtic Capital Corporation