Quiq Capital was founded in the midst of the pandemic. How was it founded, and what was it like to start a company during such a time of uncertainty?
While the platform has been around since 2018 in a less formal manner, Quiq Capital was formalized in 2021 by a group of investment professionals who had a history of working together in public and private markets. With backgrounds in structured credit, asset management and private equity at top institutional investment shops, it was clear that mispriced opportunities were abound in private markets, coupled with a dearth of debt capital for small to intermediate sized loans (ie. $500,000 to $10,000,000). Further, this segment of the market was lacking the expertise of seasoned investment professionals as larger debt funds typically focus on loans greater than $10 million, which inherently produce a more fees from a nominal perspective. As a result, Quiq Capital was born to provide bespoke, tailored financing solutions to top quality operators looking to expand their businesses with strategic working capital.
How is Quiq Capital’s approach to small business loans different from that of its competitors?
Quiq Capital employs not only a stringent origination and underwriting process, but ongoing and proactive asset management to track the performance of its loan product. Quiq’s loan product is focused on value creation and EBITDA growth which creates a demonstrable path to a timely payoff in full. Unlike other lenders, Quiq generally focuses on the higher end of small business loans to higher quality borrowers. Rather than rely on model assumptions to originate loans, Quiq employs a hands-on approach with a complete top down, bottom up analysis of the business plan, borrower and guarantor with a focus on capital preservation.
What is something you wish more people knew about the small business loan market?
Often times investors associate small business lending with less sophisticated, lower credit quality and hard money lending. While this can be true in some circumstances, it’s tough to paint with broad strokes. There are many small businesses that are highly successful with strong operating margins. With the right mix of strategic capital, many of these businesses can grow exponentially from a revenue standpoint, creating multiples of enterprise value, ultimately creating a demonstrable path to a timely payoff in full.
What framework(s) has the Quiq Capital team applied in terms of mitigating risk and performing due diligence?
Quiq Capital employs ongoing and proactive management to understand how borrowers’ business plans are progressing, as well as to identify and structure around any potential hinderances. Quiq Capital is also highly attuned to cash management; by understanding whether a loan will prepay, payoff at maturity or extend, it is able to better manage its cash, ultimately providing attractive, risk-adjusted returns to its investors. On an ongoing basis, Quiq Capital’s investment team actively seeks to identify the most important attributes to its highest quality loan product and origination partners and seeks to build upon those factors and partners. Quiq Capital’s risk and investment teams also employ a risk rating framework which takes into account 10 granular data points across five major risk categories to quantitively grade each loan. This rating is created at maturity, and updated each month thereafter to track ongoing performance relative to its business plan. Quiq catalogues these data points, from origination through payoff, with a goal of continually improve its credit quality through empirical data.
In your short history as a company, what is Quiq Capital’s greatest success thus far?
Said simply, momentum. Momentum is something that is hard to create, easy to lose, and difficult to maintain. Quiq Capital takes great pride in helping business create and grow their momentum, ultimately seeing them graduate to larger, more accretive, debt providers.
What trends or events do you see happening in the small business financing world in 2023?
While some recent macroeconomic indicators have begun to point to slowing inflation, given the Fed’s adamancy regarding combatting inflation, it’s likely we will remain in a “higher for longer” camp until it’s abundantly clear that we have turned the tide against inflation, likely through slowing economic growth and higher unemployment. While interest rate risk has been front of mind for many investors this year, it’s expected that credit risk, a result of weaker economic conditions, will become in vogue as investors evaluate how a recessionary environment will impact demand across industries. As such, Quiq Capital expects it will be able to tighten its credit box in 2023, selecting only the highest credit quality opportunities at higher interest rates than in 2021 and 2022. As such, it’s expected the downstream effects of quantitative tightening will lead to even more attractive, risk-adjusted returns.
When are you expecting to raise another fund, and what would be the expected size and use of proceeds?
Quiq Capital intends to market Quiq Income Fund II, LP, in the latter half of 2023. It’s expected that Fund II will be in the $50 – $100 million equity capital context, and will feature an equity component, as well as greater exposure to complex structured products. As revenue multiples compress and investors pull back the reins on new investments, Quiq Capital intends to pursue warrants as part of its financing for companies where it believes its financing can drive material enterprise value. Given the investment team’s experience in the world of structured credit, Fund II will also seek out mispriced, complex securities in public markets, looking to take advantage of market inefficiencies.