President’s Message (July 2023)

Rapper 50 Cent made a movie called Get Rich or Die Tryin’. One of the lines from that film was, “When I’m right, I’m right…and when I’m wrong, I could have been right so I’m still right.” That line is apropos as I’ve been pretty positive in my last couple of President’s Letters and as it turns out, I’ve been right!

I expected a busy year and so far, 2023 has turned out to be just that. Celtic Capital has seen the best year for deal flow than we’ve seen in the last five to six years. Leads are up; fundings are up; and my spirits are up! I expect to see this pattern continue for the remainder of the year for the same reasons I mentioned in my January Letter – inflation (though coming down), rising interest rates and the bank failures that have caused other banks to tighten up.

In the first two quarters, we’ve seen a number of banks so over extended that they’re either writing off or sitting back on a portion of their loans not supported by collateral. And we’re talking big dollars. Some banks haven’t faced up to the reality yet and are holding on to deals, but we anticipate they’ll be forced to exit them sooner rather than later.

Within our client base – more so with our marginal clients – we’re seeing many with cash flow problems. This is resulting from sagging sales, that their government money is gone, and that they never corrected the underlying issues the influx of cash covered up. While this has somewhat of an impact on our portfolio, it’s not severe. If it continues, however, we should see an active second half of the year on the portfolio side as well.

As I mentioned in my last Letter, Celtic Capital re-tooled our Sales Team in 2022, all of whom all doing well. In addition, we anticipate that in July, all of our systems will be on the Cloud (our last system is being converted now). We did this not only for security, safety and disaster recovery but because with so many on our team working remotely, it just made sense to release some of our corporate office space that housed both staff and servers.

On another note, some recently-passed legislation in California requires disclosures (one being APR) on all loans under $500,000. As the regulation, as written, is so confusing, it’s very hard to comply which has caused many lenders in this space to simply pull out.

Our industry delegation, of which I am a member, was recently in Sacramento and we successfully lobbied the legislature to add in a safe harbor provision to the legislation. This was a big win for all affected lenders as it protects us from penalties resulting from our calculations being off as long as we had the right intentions and were trying to comply with the legislation.

A number of states (fourteen) have followed suit to California but all have different regulations. Trying to navigate the differing disclosure requirements is concerning to the industry to say the least. Our industry delegation is now working to have the legislation standardized across all states. We’ll keep you posted.

In the meantime, it sure feels good to be right!

Wishing you a great second half!!

Mark Hafner
President & CEO
Celtic Capital Corporation