Celtic Bank, a Utah-based industrial bank, will expands its commercial loan offerings to technology companies that are not well suited for traditional loan products due to the nature of their business models with a new recurring revenue loan product.
“This is an interesting loan product that may not be suitable for many traditional banking organizations,” Reese Howell Jr., CEO of Celtic Bank, said. “It requires a different analysis and different way of evaluating risk. These characteristics are what make it attractive to Celtic Bank. We have always been committed to finding niche products and segments of the banking industry where we can make a meaningful impact and do it in a safe and sound manner.”
Celtic Bank’s recurring revenue loans are designed for growth-stage software and technology companies that provide “mission critical” technology platforms to their customer bases and have recurring (contractual or subscription) revenue models. Because their primary assets are typically intangible, owners and founders of these types of companies have a hard time securing commercial financing through conventional means. Instead, they usually raise capital by exchanging equity in their company.
“Because our lending program is a pure debt instrument, recurring revenue financing is an option for companies to raise growth capital without further equity dilution,” Daniel Godfrey, senior vice president of asset-based lending and a business development officer for recurring revenue financing at Celtic Bank, said.
Currently, most recurring revenue financing is available through non-bank lenders, according to Celtic Bank. These loans tend to have short amortization periods with large loan payments that can eat up cash owners need to grow. Bank participants in the sector generally require warrants or other equity “kickers” to enhance program yields.
“I think this a big opportunity for us to leverage our core competencies and expertise as a lending institution to target a different market segment that also doesn’t compete with our other products,” Howell Jr. said.
