During the Covid-19 pandemic the use of external finance by smaller businesses hit new highs, supported by the Covid-19 emergency loan schemes. It helped many of the UK’s 5.5mn smaller and medium-sized enterprises (SMEs) to manage and even grow during that time.

However, smaller businesses have moved from one challenge to another as the economy emerged from lockdowns. Macroeconomic uncertainty, high energy prices, inflationary pressures and a stagnant domestic economy are just some of the issues that SMEs have had to contend with in the past two years. Access to external finance is another as it remains an important resource for these businesses as they navigate through uncertain times.

Ordinarily, last year’s 12.8 per cent rise in gross bank lending to SMEs would be welcome. It was higher than in every year between 2012, when records began, and 2019. However, it remained below the record high of 2020 (£104.9bn), which was largely driven by Government-guaranteed Covid-19 loans, and it was accompanied by a fall in the number of smaller businesses accessing external finance. The need for finance is creating an opportunity for other specialist lenders. 

Despite raising profit guidance three times this year, one specialist finance company targeting SMEs, is rated on a miserly forward PE ratio of six. Business is booming, so much so that annual reported pre-tax profits surged 273 per cent in the financial year just ended. With own-book originations strong, and management scaling their secured lending activities (and increasing the average loan size), it’s reasonable to expect another year of robust growth. Priced a third below net tangible net asset value and more than 60 per cent below net asset value (NAV), the group’s unbroken 10-year track record of profitability is being chronically undervalued.

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