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FOLK2FOLK Review

It seems very likely that FOLK2FOLK, with its long track record, is a reliable, safe over-performer; we just wish for some detailed data to verify and rate them.

The FOLK2FOLK logo in 4thWay's FOLK2FOLK Review. This lending account is Unrated or Not rated

FOLK2FOLK's Property-Backed Business Lending Account/IFISA unrated, due to lack of information.

This account has been paying in the region of 8.75% interest after zero losses to lenders.

Visit FOLK2FOLK or keep reading the FOLK2FOLK Review.

Before you read on, you should know that the minimum you can lend in any one loan is £20,000.

When did FOLK2FOLK start?

Through FOLK2FOLK, established in 2013, lenders have lent over two-thirds of a billion, at £696 million.

It does business loans, all backed by real land or property, to a wide variety of trading and property businesses: from farms and hoteliers, to residential and commercial property purchases, and to property companies or to support renewable energy projects.

The loans can be anything from six months to five years.

What interesting or unique points does FOLK2FOLK have?

FOLK2FOLK entered P2P lending earlier than any other provider listed on 4thWay.

It has funded by far the most P2P loans of any provider in the UK – several hundreds of millions of pounds more than its closest competitors.

Lenders have still suffered no losses of their lent money on any loan.

FOLK2FOLK itself is resoundingly profitable and is notable for how it sticks to lending it understands, even through its high-growth phases.

How good are its loans?

While we don’t have data on its individual loans to analyse in depth, FOLK2FOLK does usually limit borrowers to borrowing no more than 60% of the property valuation, which it sometimes stretches to 70%. 60% is an excellent maximum.

Virtually all loans are first charge, meaning that lenders through FOLK2FOLK are first in the queue to get their money back in the event that the borrower can’t repay and the property needs to be sold.

FOLK2FOLK’s lending is rather more like business lending than most property lending you see, whereby there is more credit and affordability checking. This means that FOLK2FOLK assesses the borrowers and their businesses in more depth than you usually see in property P2P lending, while you still get the same solid, quality security you get in straight-up property lending.

Where this mostly stands out is in its bridging and development lending, which normally has fewer business checks and therefore more reliance on the development project and the developers’ experience.

Plus, even for developments, borrowers always pay regular interest, which generally helps to better assess risk, and lower overall risk, when a borrower has income to cover those payments. In addition, the maximum 60% lent is always based on the starting property valuation, rather than the hoped-for sale price of the to-be-completed development.

FOLK2FOLK loans don’t just fund borrower growth and expansion, but also working capital. That means funds to carry on the day-to-day business operations. Those sorts of business loans can potentially be higher risk if not done right.

But FOLK2FOLK has its favoured industries which it understands well and particularly targets. These are usually tangible businesses, like workshops, manufacturers, wholesalers, retailers or offer professional services. The impact of this non-scatter gun approach can’t easily be measured, but it’s significant.

How much experience do FOLK2FOLK’s key people have?

FOLK2FOLK has a big team. There are no holes in essential training and experience, which they have in clear abundance, with confirmed career histories covering the specific types of lending FOLK2FOLK does in terms of credit policy, underwriting, risk and ongoing loan management.

That’s on top of the 11 years experience since its P2P lending platform was created and the lending it did prior to that too.

As usual for these kinds of lending, we think that FOLK2FOLK would benefit by going a step further than their most similar competitors by having a team more focused on assessing data. They do have an individual person at the company to do that, but he’s very busy, pulled in many different directions. But this is a minor point and merely a nice-to-have.

FOLK2FOLK review: lending processes

Their experience shapes the flow from the borrower requesting a loan to the final decision, but they still have a professional, well-considered, rules-based approach to assessing loans.

I mentioned earlier that bridging and development loans are not as standard, but more assessed as business loans, albeit property-secured ones. In practice, that means these key differences:

  • More credit checks, including through Experian, where there needs to be a clear history. While we at 4thWay always prefer to see two credit-reference files being consulted, one is standard. Furthermore, a 4thWay specialist has conducted a comparative assessment of all the credit-reference agencies and found Experian’s results were the best.
  • Borrowers are required to pay regular interest, whereas in development lending it’s usually rolled up and paid off at the end.
  • There is more assessment of the business itself, including checks on the borrower’s income to ensure it can cover the interest payments and that it isn’t over-borrowing.
  • The risk is better contained than usual by valuing developments on their current property value and not the hoped-for sale price.
  • Even for bridging loans, which are often all about the value of the property, FOLK2FOLK is intensely interested in the borrowers themselves, whether they have a past (good or bad).

The greatest surprise for me is that FOLK2FOLK only physically values properties that are over £750,000 and otherwise does a desktop valuation using online tools. Clearly, any additional risk that might arise from that are being well offset by its additional emphasis on borrower quality.

It’s not all different at FOLK2FOLK. For developments, they still expect to see an appropriate level of experience.

Also, like most P2P development lending, borrowers raise money in tranches through FOLK2FOLK as each phase of the development is completed. This is not ideal, as it can mean funding dries up and the development is stuck. But since it values at the current price, this provides additional protection that you don’t usually get when doing “pure” P2P development lending.

Furthermore, FOLK2FOLK often has loans prefunded by financial institutions, which further lowers that risk.

Each deal is signed off by three senior people in its credit committee. The decision is a majority one; I’d rather it be unanimous. But if the loan is for over £1 million, it then also goes to a risk and audit committee for final guidance. That last step doesn’t usually happen in P2P lending.

Loan monitoring

Loan monitoring is as you’d expect, but I shall make special mention of its development loan monitoring, as this is a more specialist area.

FOLK2FOLK does do a fair bit of the additional monitoring of developments that you see in standard development lending, including a revaluation as construction work is completed, which is when each new tranche is offered to the developer.

There is not as much monitoring as you often see in “pure” development loans. Even so, as these loans are well covered by the initial or current property valuation, I am very content with the level of monitoring.

Indeed, the details in how specific cases progressed – and been resolved – when it has not progressed smoothly provides demonstrable support for the FOLK2FOLK’s monitoring practices.

Processes for late and bad debts

FOLK2FOLK has a structured, timely approach when loans fall late in terms of when it steps up actions with the borrower, as well as for passing the case on to more experienced team members to deal with.

While this sounds routine and mundane to you – and in many ways it should be – it’s not always the case in P2P lending. So it’s important to see that FOLK2FOLK are doing this right, because it’s sloppy bad-debt-collection practices that lead to long delays and ultimately lender losses.

How good are FOLK2FOLK’s interest rates, bad debts and margin of safety?

It’s regrettable that FOLK2FOLK isn’t in the position to provide us with its full, detailed loan data, so I can’t do any of our core assessments to stress test how lenders might do in a severe recession and property crash. That’s why it can’t receive a 4thWay PLUS Rating.

However, it seems likely that its lender rates well above 8% are more than enough to cover any possible bad debts.

Maybe 5%ish of all loans fall 180 days or more late, although not all of these are genuinely bad debts where the borrower is truly going to struggle to repay the full loan.

Lenders have not suffered any losses of their lent money in 11 years. We have no data or figures on any loss of interest, but it’s going to be very low indeed, if not zero.

If we had more data, I could begin to assess how often FOLK2FOLK rolls loans over or extends them. This is usually vital work for 4thWay and it’s probably where we uncover the worst hidden problems. However, with all the access for interviews FOLK2FOLK has provided, combined with all the other figures and documentation, I am still confident that it’s not trying to hide problem debts that it’s kicking down the road.

Has FOLK2FOLK provided enough information to assess the risks?

While it hasn’t provided detailed data – which is normally now pretty much a must for being listed on 4thWay – I am certain that it’s not hiding this information from us. It simply doesn’t have the capacity right now to streamline, prepare and automate its data for us.

It has otherwise been very open to everything that we have needed in our very long, intensive assessment.

That’s why I do believe it has provided enough information for a confident assessment.

Is FOLK2FOLK profitable?

FOLK2FOLK has now had five years of profitability, including a million pounds in both its last two financial years.

It’s also in its third consecutive years of paying income back to its shareholders (called dividends). This normally suggests stable profitability has been reached, although that was already clear.

What can you tell me about FOLK2FOLK’s cybersecurity?

A soft security probe for 4thWay by Sucuri has found it to be free of obvious malware. The site doesn’t appear on any important security providers’ blacklists.

It appears it could use some further hardening against cyber risks in terms of some simple, easy-to-rectify security steps. I would certainly like to see that reviewed and improved.

Is FOLK2FOLK a good investment?

This is a very profitable platform with lots of lending behind it and plausibly impeccable results for more than a decade. The people all have a clear emphasis on sticking with what they are good at. This investment is probably as solid as it gets.

What is FOLK2FOLK’s minimum lending amount and how many loans can I lend in?

£20,000! Per loan! But don’t worry, it used to be £25,000.

It does nevertheless have a lot of loans or tranches. While we don’t get full data on it, I estimate there are probably 15-25 per month, so if you have deep pockets I expect you’ll normally be able to spread your money around pretty quickly.

You choose all your loans yourself.

Does FOLK2FOLK have an IFISA?

Yes, FOLK2FOLK has an IFISA which has no additional costs. You can transfer into it from other ISAs.

Can I sell FOLK2FOLK loans to exit early?

Yes, if another lender wants to buy.

It costs you £250 to do so – and you pay that regardless of whether you successfully sell.

That means a maximum 1.25% fee if you attempt to sell the minimum £20,000. If you’re attempting to sell a loan worth £50,000, it’s a 0.5% fee.

I expect FOLK2FOLK lenders to rarely have trouble selling their loan parts.

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