President’s Message (July 2019)

The first half of the year was quite active for us. In fact, in terms of fundings, the first quarter was one of the most active in our recent past with the majority of deals coming from our Pacific Northwest and Southern California markets.

Client sales levels were down a bit in the first quarter which is not too unusual. And while sales levels for most started picking up again in the second quarter, we do have a handful of clients who are struggling including a couple of borrowers who have orchestrated sales of their businesses. Fortunately, we haven’t seen an increase in liquidations; we just have a few clients going through a rough period and we’re advising and helping them manage through it.

In terms of lead activity, deal flow is strong. The challenge this year has been the deals themselves, with many having multiple hurdles to get to closing, not the least of which is availability (paying banks off). Many deals require significant restructuring which adds time and complexity. I think banks need to be more cognizant of the fact that if they lend more on inventory or equipment than accounts receivable, other lenders may not be so willing to do so. One of the reasons we’ve seen such a high level of lead activity this year is that our referral sources know that we’re not one to walk away from a challenging deal. Creative deal structure has always been one of the cornerstones of how we do business.

In addition to the ability to pay off the primary lender (banks), another challenge we’ve faced is that borrowers have additional loans that they believe are unsecured but are not (merchant cash loans). Borrowers are told the loans are unsecured but the lenders do file a lien on the company’s assets. While a handful of these lenders will subordinate, many will not, which again, leads to time and complexity to bring the deals to fruition.

Given all the challenges, I don’t know why but I continue to be optimistic. With respect to the economy, experts deviate on predictions on a daily basis and it’s difficult to even know who to listen to. So, we’ll continue to do what we do best and support our referral and prospect base with creative credit structures to provide facilities that work when conventional, or other unconventional sources, don’t or won’t.

I encourage banks, if they really want deals out, to push because in many cases, there will be hurdles. But at Celtic Capital, we’re up for, and welcome the challenge.

In closing, I hope your year is shaping up to be successful, and if we, at Celtic Capital, can be of assistance to you with any deal from $500K to $5M, I hope you’ll give us a call.

Mark Hafner
President & CEO
Celtic Capital Corporation