Cornish peer to peer lending company, Folk2Folk, focus on the principle of ‘keeping it in the community’. Their goal is to create a personable and friendly experience for both borrowers and lenders with the chance to engage with real people rather than only through an online platform. One of the ways they do is through high-street outlets (Cornwall, Devon, Somerset and Gloucestershire), the only peer to peer lending platform to offer this type of service. Folk2Folk work on the premise of lower risk, high-security loans that benefit the borrower with a fair approach and lenders with attractive interest rates.
Folk2Folk originally grew out of law firm Parnalls of Launceston and to date have funded over £135 million of loans for projects such as farm diversification, property development, wedding venues and golf courses. They have grand ambitions to grow to ‘every local community across the UK‘.
Type of Loans
- Fixed-term loan of up to 5 years’ duration
- Easy In/Easy Out loan (3 months’ notice either way)
- 5.5%: applicable to fixed-term loans of 1 or 2 years with a maximum LTV of 50%
- 6.5%: applicable to fixed-term or Easy In/Easy Out loans with a maximum LTV of 60%
Early Sell Out
Easy In/Easy Out loan option allows the lender to opt out after three months’ notice. The borrower will be subject to administration costs to find a replacement lender.
Fixed term loans will subject the lender to an administration charge and will only be able to opt out if the lender can be replaced.
Minimum Investment: £25,000
New Customer Cashback: None at the moment.
Innovative Finance ISA: Coming Soon, priority to existing investors.
Website Link: www.folk2folk.com
How it works
Lenders must fill in an application form, stating their preferences and areas of interest so that Folk2Folk can matchmake appropriate borrowers and lenders. Lenders can choose to lend to one borrower or a number of borrowers. For borrowers, a decision for a business loan is made within 48 hours and Folk2Folk offer fixed or flexible loans depending on the needs of the borrower. Folk2Folk aim to move quickly, enabling the borrower to have access to funds within ten days with no capital repayments.
With a longer history of arranging loans and their background solicitor experience, Folk2Folk have an advantage over some of the more recent peer to peer lending start-ups. Folk2Folk also only lend up to 60% of the Loan to Value (LTV) ratio to make the loan responsible and increase its security.
Since 2013, the business has only seen one late interest payer and a default 0% loss suffered by lenders. Folk2Folk, like some other providers, deter late interest payments with a financial penalty for borrowers.
If you’re fortunate enough to live close to one of their retail outlets, the fact that they are a high-street style business with a network of shops that you can visit could be a real benefit to lenders who appreciate a personal touch. Perhaps this also helps them work towards lower default rates, as borrowers can pop in for a face-to-face?
The fixed rate interest is paid directly into your bank account every month which is useful for those who want to live off their investment income. Investors may also get some satisfaction that their money has been invested locally and that the regional economy is thriving thanks to them and like-minded investors and loaners.
P2PFA (Peer to Peer Finance Association)
Folk2Folk recently became a part of the Peer to Peer Finance association, a self-regulated industry body which many of the larger platforms have signed up to. One of the things this means is that Folk2Folk will now have to commit to supplying more open data on their loan book and transparent data on things like default rates and late payments. More detailed analysis to come from P2P Blog once this has been released.
Since December 2016, Folk2Folk have also been fully authorised by the Financial Conduct Authority (FCA).
As with any investment opportunity, there are risks and Folk2Folk is no different, serious consideration must be taken when choosing to become a lender. Unique to Folk2Folk, you have a closer relationship with the borrower (they know your name from the documents and may know you personally depending on the community you invest in). If the borrower becomes bankrupt, you face the financial risks involved and may feel also a degree of personal loss from the business you played a part in.
As well as the risk, Folk2Folk do set their minimum investment high at £25,000, which can be unfeasible for many investors. That being said, Folk2Folk are considering lowering the investment threshold in the wake of their newly implemented Innovative Finance ISA manager status. It is suggested that the threshold may be lowered to £15,000 to allow for the annual ISA allowance although this will increase to £20,000 in the next tax year.