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Understanding the risks and other things you should know

With all investments, there are a number of risks you should be aware of and we’d like to draw your attention to a few things.

Before investing in a FOLK2FOLK business loan it’s important to familiarise yourself with our General Terms & Conditions.  If there’s anything you don’t understand, or if you have any questions regarding your FOLK2FOLK investment, please contact us.

General lending risks

Your capital is at risk

Due to the potential for losses, the Financial Conduct Authority (FCA) considers Peer to Peer and Marketplace investments to be high risk. Read the FCA’s key risks summary here.

P2P platforms are not covered by the Financial Services Compensation Scheme (FSCS). What do we mean by this?

P2P platforms are not covered by the Financial Services Compensation Scheme (FSCS), but the purpose of the FSCS itself is commonly misunderstood. The FCSC does not cover investing losses, it only pays limited compensation to customers in the event an eligible financial firm fails. Instead of FSCS cover, the Financial Conduct Authority (FCA) requires P2P platforms to have their own wind-down service provider to take over the ongoing management of loans and investments in the event the P2P firm fails (see details below).

Risk of failure of FOLK2FOLK

FOLK2FOLK is authorised and regulated by the FCA which requires us to maintain a certain level of regulatory capital. This means that there should always be sufficient capital for an orderly wind-down of our business.  If we become insolvent, our platforms fails, or we otherwise cease our operations then we would look to wind-down our business in a controlled and organised way.

In line with our regulatory requirements, we have appointed a standby servicer to support this wind-down process.  They would, for example, continue to administer existing loans and collect borrower repayments until the earlier of loan maturity or repayment.  Our current standby servicer is RSM Restructuring Advisory LLP (“RSM”).  We can select a different standby servicer in our discretion.

RSM is not authorised by HM Revenue & Customs as an ISA Manager and so is not able to take over administration of IFISA Accounts.  This means that Loans held within an IFISA Account would no longer keep their tax-free benefits.  In any event, as RSM is a separate legal entity to Folk2Folk it is possible that the regulatory protections and permissions afforded to our customers and to us could be reduced or not available through any wind down service period.

Your funds held as cash are in a bank account that is separate from Folk2Folk’s own bank accounts and it cannot be used for our own business purposes.  The Financial Services Compensation Scheme (sometimes called “FSCS”) is not available.

Interest rate

Our loan interest rates are fixed and set out in the loan documentation applicable to your loan. This means that for the duration of your loan investment, the interest rate will not increase or decrease if market interest rates change. Under normal circumstances, your loan investment will provide you with the interest rate paid monthly in equal installments.

However, if your Borrower is unable to meet monthly payments you will not receive your interest payments until they start paying again. Therefore, this type of investment may not be suitable for you if you rely upon monthly income. The missed interest payments will still be due to you and will rise to a higher interest rate (see General Terms & Conditions) but they will be delayed.


If your Borrower defaults and there is an extreme downturn in the property market there’s a risk of delay in selling the security property to repay your loan. Therefore this investment may not be suitable if you rely upon prompt repayment of your capital. The outstanding amount will be deferred until the loan status has been repaired or (if required) enforcement action concluded with the security being sold.

In the event of a forced property sale or a severe downturn in the property market, there’s a risk that the sale of the security property may not release sufficient funds to repay all the costs of enforcement, outstanding interest and your capital sum.

You can view our default record here and our current Outcomes Statement.


There are no guarantees regarding the availability of loan investment opportunities. Availability depends upon demand from our Borrowers.  Once in a loan, your Borrower may repay the loan earlier than the anticipated end date. If this happens you can choose to invest in another loan.

Accessing Your Money

FOLK2FOLK loans are illiquid assets which means you cannot exit them quickly. You should be prepared to hold your loan investment until maturity. As an Investor, you have the right to offer your loans for sale via our secondary market but we cannot guarantee a sale. Fees apply.

If your investment loan were to fall into arrears or default you cannot offer your loan for sale via our secondary market. You will need to wait for the loan situation to be repaired or the defaulted loan recovered.

There is no right to cancel your investment in a loan since it is an agreement secured on land.

Spreading your risk

If you have sufficient funds, you can diversify your risk exposure by spreading your money over a number of loans, rather than concentrating them in one. Currently, the minimum amount that can be invested into a single loan is £20,000.

We don’t give advice

It’s your responsibility to assess whether lending via FOLK2FOLK is suitable for you, with particular regard to your individual risk appetite and personal financial circumstances. We’re not able to advise you on the appropriateness or suitability of any loan. We recommend you take advice from an independent financial advisor if you’re in any doubt as to whether investing in a peer to peer loan is right for you.



IFISAs are not the same as cash ISAs. The risk of investing through a peer to peer platform is higher and there’s no guarantee that your capital or interest will be repaid.

You can invest your annual ISA allowance of £20,000 in tax year 2023/24. Once a new tax year starts you will have a new allowance to invest. The date we receive your funds is the date on which your ISA subscription starts.


Interest is paid to you tax-free monthly to your specified bank account. Interest earned on the IFISA can’t be accrued inside the IFISA so if £20,000 is invested, the investment amount at the end of the term will remain at £20,000. Bank interest is not payable, and loan interest is only payable if your funds are invested in a loan.  Learn more about tax and return.

IFISA Timings

Timing to start earning tax-free interest is dependent upon eligible loans being available and there are no guarantees as to how long it’ll take to be matched to a loan. There’s a possibility funds won’t be matched in that tax year, in which case your funds will still retain their tax-free status within the IFISA wrapper but no interest will have been earned.

How we manage risk

Secured loans

All loans are secured against UK based land or property. We do not offer unsecured lending which is more risky than secured lending.

Low Loan to Value (LTV)

We typically lend up to 60% of the Market Value of the security.


From February 2019 we started using Open Market Value instead of Forced Sale Value for new loans.

Professional Indemnity Insurance

We carry Professional Indemnity Insurance. As part of our processes, we take advice from external solicitors and valuers to assess the proposed security property and we check these professionals have Professional Indemnity Insurance.

We’re choosy but fair about Borrowers

We take an holistic view of Borrowers, businesses and the security property and turn down those that don’t meet our criteria.


Stress testing

Loans arranged through FOLK2FOLK are secured against UK property assets and we take a traditional and conservative approach to the valuation of the security and the leveraging of Loan to Values.

Our loans are subject to an internal annual review to ensure the original transaction is on track.  We are ever mindful of the external influences that could undermine our Investors’ investment such as falling GDP, lowering of interest rates, sector stability, current political environment to name a few.

Due to the secured nature of our business, a key area we monitor is a fall in property asset values and we look at this on a sector and portfolio basis.  We undertake a regular review of property values and apply the Bank of England 2018 stress test.