President’s Message (July 2021)

In January, I closed my Letter with, “Wishing everyone a better year.” We’re now halfway in and while Celtic Capital’s new business activity and number of proposals issued have improved, conversion rates have been low. But we’re not losing deals to competitors; we’re losing them because companies are flush with cash – more so than normal, thanks to stimulus money.

My January Letter was all about PPP. This time around, the hot topic is round two of the stimulus – Economic Injury Disaster Loans (EIDL) and their effect on both lenders and borrowers.


Initially, early in the year, EIDL kept borrowers from seeking new financing or from borrowing on existing loans. As we hit the second quarter, borrowers found they needed more availability but they didn’t want to pay off their EIDL because of the low interest rates attached to those loans. When borrowers started looking to other lenders for additional capital, issues with EIDL started to appear.

As EIDL take a security interest (on everything, for 30 years), these loans must be subordinated and that has dramatically slowed down the new business process. Add to that – subordinations all have a dollar limit. Credit lines can’t be raised without SBA consent (which can take weeks to months) and that has totally disrupted the flow of credit to the market. Lenders have struggled with a frustrating subordination process and borrowers have had to wait to get the additional capital they need.

The major EIDL issues can be boiled down to two things:

  1. There needs to be a more efficient and standardized subordination process.
  2. EIDL are disaster loans. When will the disaster be declared over? Isn’t it over now? When will these loans stop being written?

I’ve been working, on a trade association level, to deal with these issues and effect some significant change. EIDL are damaging both to lenders and to borrowers who really don’t realize the impact these loans have on their ability to secure additional capital.

Third and Fourth Quarters

While banks still haven’t been pushing out deals, as the months march along, I believe they will start loosening up and we’ll start seeing more deal flow later in the year. Banks will have to start pulling the plug or run the risk of not being able to get out of some deals whole, if at all.

This opinion is confirmed by what we learned in a Poll our Sales team posted on LinkedIn in which about half of the responders believed banks will be exiting deals toward the end of the year. In other Polls, we learned that in-person meetings are beginning to occur with more frequency, and a whopping 86% of responders indicated that they’re looking forward to in-person happy hours starting soon. All in all, people are ready and eager to start face-to-face interactions again which bodes very well for our industry.

The economy seems to be doing well, overall. Whether that continues will depend on the changes the administration makes, e.g. tax increases. The infrastructure proposal is probably most likely to reach some sort of compromise but the deficit is an ongoing problem. We’ll have to wait and see how things unfold.

Celtic Capital

So far this year, we’ve not been affected by COVID other than how working remotely has changed our work force. Some of our employees have moved further away from the office – even out of state – and are working from home. We have fewer bodies in the office which before COVID never seemed like a good idea. But as it turns out, a remote workforce has proven to work well. We currently have no hiring plans but when we do, a remote workforce opens things up to find the best available candidates from any locale. This provides more opportunities both for people looking for work and for us.

While we were transitioning to a cloud-based infrastructure prior to COVID, circumstances pushed us to be less reliant on our in-office servers and move to the cloud more quickly. This has streamlined our operations and made processing work much easier.

In closing, with vaccinations up; with states loosening restrictions and businesses coming back to life; with EIDL issues being addressed; and with banks readying themselves to push out problem deals, the future is starting to look much brighter.

Mark Hafner
President & CEO
Celtic Capital Corporation