Sachem Capital Corp. 10-Q

Item1A. Risk Factors We have significant unfunded commitments to existing borrowers. If we are unable to fund these commitments, we may be subject to borrower legal claims. At September 30, 2022, we had unfunded commitments under existing loans of approximately $118.1 million. We do not record these unfunded commitments as liabilities on our balance sheets as the unfunded portion of the loans are not included in the outstanding mortgage loan balances. We also have not created a reserve for these unfunded commitments. However, we try to maintain a reasonable amount of working capital at all times, although not in amounts sufficient to cover all our deferred funding obligations. In addition, we also have the ability to borrow funds against our portfolio of marketable securities, although the value of these securities in our account fluctuate regularly based on our liquidity and demand for our loans. We also can raise capital through the Churchill Facility. Nevertheless, there is a possibility that demands for funding under existing loans could exceed our available working capital and if we fail to meet our funding obligations, we may be subject to legal claims by the borrowers. This could have a material and adverse impact on our business reputation, our operations as well as our financial condition. Inflation and rising interest rates could adversely impact our business, operations and financial condition. Since the beginning of the current year through the date of this report, the Federal Reserve Board (the “Fed”) has raised interest rates six times for an aggregate of 3.75%. These are the first interest increases since December 2018. As a result, the prime rate has increased from 3.25% to 7.00%. The Fed’s rate increases are in response to a sharp increase in the annual rate of inflation in the United States, which was reported to be 8.2% for the 12 months ended September 2022, the highest rate in decades, per the Wall Street Journal. As a result of these increases, the growth of the U.S. economy has slowed. Until now, these economic factors have not had an adverse impact on the volume or velocity of our business. However, they have led to an increase in our borrowing costs. In addition, the increase in interest rates and inflation and the decrease in the rate of growth of the U.S. economy has caused a severe decrease in the major stock indices and a general decrease in the valuations of many public companies, including Sachem Capital. As a consequence, our ability to access the public markets to raise capital has been adversely impacted. If these trends continue, they could result in decreased demand for our products and a decrease in property valuations, which could have an adverse impact on the ability of our borrowers to repay their loans. Thus, we cannot assure you that our business, operations and financial condition will not be adversely impacted.