President’s Message (July 2020)
In my January letter, I said we’d have “more of the same” this year. Well…we did…for two months. Obviously, COVID-19 was not something I could have predicted. The virus hit in March and completely threw everything I thought about this year out the window.
So let’s see where we are today and what my hopes are for the rest of the year:
I’m happy to report that only two of our clients closed down because of the virus; the others, considered essential businesses, have remained open. And among our client base, collections have been good. While sales have been flat or up for about 40%, for the portfolio overall, sales have declined 22%. All received PPP money (on average, about $750K) so, not surprisingly, Celtic Capital borrowings have been down.
The PPP money was a life saver for companies where sales declined, and none of our clients had to come to us for additional help or accommodations. However, without PPP, I know we would have seen some big problems.
My hope is that companies are managing their PPP money appropriately (not only in terms of staying within the guidelines for having their loans forgiven) so that when the money runs out, they’re experiencing increased sales thereby seeing their businesses on more solid ground. We sent a letter to our clients about the importance of cash flow planning and included a cash flow template to help them manage their PPP dollars. No question their P&Ls will be taking hits this year. The real question is who can survive?
As states open up, sales will start to recover but it will take a good, long while to get back to where we were at the beginning of the year. And this assumes there will be no major recurrence of the virus in the near future. Until there’s a widely-used vaccine, it will be tough to get back to a real semblance of normal.
There’s no question we’re in a recession but for how long it will last is open for debate. I think we’ll see a glut of bankruptcies and business failures some of which could be ameliorated as banks pick up the pace of exiting marginal clients to alternative lenders. Now is the time for banks to look at their portfolios and assess which of their clients aren’t likely to make it. Banks need to adequately forecast what they may be facing later this year so that they know how to plan going forward. And in my mind, that means starting with any business that was marginal before this crisis hit. The sooner banks start the process the better it will be both for them and for their clients.
I do think we’ll see a slow, gradual increase in sales during the rest of the year. If sales don’t come back strong, however, collections may become a problem. We’ll have to see how it goes.
It’s been a very tough year and it will continue to be rocky for the foreseeable future. Strategies for opening up vary by state and by virus case counts. Since lockdown, our Client Development Officers have stayed in communication with their referral sources and prospective clients via Zoom and other online platforms and in some areas, are meeting with them in outdoor settings. We continue to be committed to the business communities in which we serve and are actively and quickly jumping in to help businesses secure financing as they’re referred to us. In fact, I’m actively recruiting to put on an additional Client Development Officer in a new territory as early as next month.
In closing, all I can say it that it’s been a heck of a ride so far this year and I don’t think it’s over yet. I’m hopeful we’ll all end the year on an upswing and stay healthy during the process.
President & CEO
Celtic Capital Corporation