Consider this – a microcap financial services company with a market cap below $10m, little to no trading activity over recent months, but rocketing annualised cashflow growth of 58 per cent.

Listed financial services provider N1 Holdings (ASX: N1H) is still flying under the radar, after pivoting to a lending model that provides finance to small and medium enterprises (SMEs).

And based on the company’s latest quarterly results, it’s a strategy that’s finding some traction.

N1H reported cash receipts in the March quarter of $1.209 million, up from $757,000 in the prior-year comparative period.

That marks an annualised quarterly increase of 58.9 per cent — rapid early growth which has been established off lending capital of only $4 million.

The company is now looking to significantly expand its funding base to capitalise on what it sees as a big growth opportunity in the Australian market.

Finding the middle ground

The company initially listed on the ASX in 2016, when it obtained an Australian Financial Services Licence and primarily operated a mortgage broking platform.

Pivoting to the lending market, N1H initially allocated $1 million of capital and signed off on its first commercial loan in December 2017.

At the end of March 2019, commercial lending income now accounts for around 35 per cent of its overall revenue stream.

N1H says the rapid growth is indicative of a growth opportunity in Australia’s economy — the clear demand for loan facilities among Australian small businesses.

The company provides business loans for SMEs starting at $100,000 with a maximum limit of $2 million.

Interest payable on the loans is set at 12 per cent on flexible monthly term arrangements, up to a period of 12 months.

Businesses that require bridging finance for shorter periods — say three months — only pay interest on the loans for that time.

Before it issues finance, N1H obtains collateral on the loan — usually in the form of residential real estate put up by their customers.

In doing so, the company sits in the middle ground of the market between large commercial banks that usually apply more stringent loan terms and startup B2B lenders, offering no-collateral finance options but charging significantly higher interest rates.

Coinciding with the growth in March 2019 revenues, N1H raised another $4 million of debt finance to take its funding base to $8 million.

And the company expects that with a larger pool of capital to deploy, the upward trajectory in its commercial lending revenue should continue into Q2.

Ultimately, N1H says it hopes to raise another round of at least $25 million. The larger amount will give N1H an established platform to supply the untapped demand for commercial credit among Australian SMEs, and further establish traction in the market.

While housing credit remains subdued near all-time lows, business credit in Australia has remained robust, and earlier this year rose at the fastest annual pace since late 2016.