Folk2Folk’s average loan size has increased by 55 per cent, in a reflection of a trend towards larger property developments.
“We have noticed that there are fewer small-scale property developments as a result of building material costs,” says Roy Warren (pictured), managing director of Folk2Folk.
“For Folk2Folk, the average loan size is increasing. We’re seeing our average loan size go up from £340,000 up to £530,000.”
However, Warren adds that less than a handful of Folk2Folk’s borrowers are currently in forbearance, thanks to the lender’s rigorous credit checking process and ongoing portfolio management.
This prudent approach will come in useful as the platform is seeing an increase in applications for refinancing from other lenders such as banks. Folk2Folk is well equipped to handle these requests, taking its unique holistic approach to reviewing and checking each borrower and business.
“During Covid, we implemented several operational changes, from application through to credit approval,” Warren explains. “We decided to retain all of these additional measures post-Covid.
“Now, when assessing applications, we continue to consider how the crisis has, and potentially continues to, impact on each borrower.
“We also enhanced our credit approval process, as part of our ongoing prudent and common-sense approach, to limit exposure to unnecessary levels of risk.”
To balance the best interests of its borrowers with those of its investors, Folk2Folk takes a strict approach to its portfolio management. The platform has its own internal definition of a default as a loan payment which is 14 days overdue. This is significantly shorter than the Financial Conduct Authority’s definition of 180 days.
In order to keep default rates low, the platform fosters a culture of ‘no surprises’ by maintaining regular dialogue with its borrowers. Any missed payments are flagged internally within one day.
This approach has helped Folk2Folk to maintain a track record of zero investor losses since the platform was founded in April 2013.
In fact, the lender has recorded an average default rate of just 1.21 per cent per annum since inception – lower than the industry average of two to three per cent.
This is a testament to Folk2Folk’s credit quality and ability to evolve along with market trends.
And there will be more opportunities to evolve in the future, while staying true to the platform’s fundamentals.
“I think there are three key challenges for business lenders now: portfolio management and serviceability due to external economic pressures, and for us as an interest-only lender, there is risk regarding a borrowers’ exit if that is via a refinance,” says Warren.
“We work to mitigate these risks via our portfolio management approach.”
Over the next few years, Warren expects to see continual growth in challenger banks funding businesses via platforms like Folk2Folk, as well as looking to make acquisitions.
“I expect further consolidation within our sector, particularly if bad debts increase which could be the demise of some other platforms,” he predicts.
Even as loan values rise, Folk2Folk will stay true to its roots by offering a ‘fair exchange’ to its borrowers and investors by applying its tried-and-tested due diligence to every potential loan, while enabling businesses in the underserved rural and regional parts of the UK access to much needed finance to grow, develop and diversify.