Celtic Bank expanded its commercial loan offerings to technology companies that are not well suited for traditional loan products given the nature of their business models.

"This is an interesting loan product that may not be suitable for many traditional banking organizations," said Reese Howell, Jr., CEO of Celtic Bank. "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's recurring revenue loans are designed for growth-stage software and technology companies providing "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 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," said Daniel Godfrey, SVP of Asset Based Lending and Business Development Officer for recurring revenue financing at Celtic Bank

Currently most recurring revenue financing is available through non-bank lenders. These loans tend to have short amortization periods with large loan payments that can eat up the cash owners need to grow. Bank participants in the sector generally require warrants or other equity "kickers" to enhance program yields.

"Because our recurring revenue program is particularly tailored for growth-stage technology companies with a two to four-year horizon on a liquidity event, the repayment structure is designed to preserve cash for continued growth. Our loans are structured as interest-only that is split between cash pay and a paid-in-kind (PIK) component that is deferred until maturity. Ideally, this is one of the last tranches of capital to be raised to get them to a liquidity event."

Celtic Bank first opened its doors in March 2001, and over the past 20 years has become one of the top SBA lenders in the nation. In addition to SBA loans, the bank has branched out into strategic lending partnerships with FinTech companies and created a Commercial Specialty Finance Group that specializes in originating non-SBA loans for equipment financing, renewable energy financing and now — recurring revenue financing.

"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," said Howell, Jr.