Think back to 2001 when the Foot and Mouth epidemic raged across the UK. The outbreak led to the culling of thousands of animals, not to mention the loss of billions of pounds.
It certainly took its toll on agricultural, leisure and tourism sectors over the years, and many needed funds to revitalise their business. The disaster was made worse by traditional lenders, such as the banks, removing themselves from the SME space.
But for many rural businesses, Folk2Folk has been a saving grace. The peer-to-peer (P2P) lending platform has helped struggling companies in a time of need, and in some cases prevented an entire community from caving in on itself.
Community is clearly the crux of Folk2Folk.
“We don’t exist as a platform that wants to talk solely about interest rates,” says Giles Cross, the company’s chief marketing officer. “Rather, our purpose is to sustain local and rural communities around the UK – where people want to club together to make a difference.”
Headquartered in Cornwall, the concept of Folk2Folk stems from Launceston-based law firm, Parnalls Solicitors, which was involved in setting up private mortgages in the local community.
The premise was simple: people with money would lend to others who needed cash for their business.
With the first private mortgage recorded in the 1600s, it’s a method of financial transaction that even pre-dates the traditional banks and building societies.
Folk2Folk’s business model revolves around this local exchange of money, but the evolution of technology has launched the firm into the peer-to-peer sector.
“It’s like Poldark 2.0,” chuckles Mat Gazeley, the firm’s PR manager. This is a reference of course to the television series which sees a solicitor put the main character in contact with investors in his local area, who in turn help to fund his enterprise.
Nation of shopkeepers
“Folk2Folk is the evolution of a business practice that goes back hundreds of years,” Cross tells me.
He goes on to quote Napoleon, who allegedly described the UK as “a nation of shopkeepers” – essentially referring to the fact that small businesses represent the heart and health of the British economy.
Considering SMEs make up around 60 per cent of the British workforce, it’s clear that the combined power behind these businesses can galvanise a local economy.
Cross points out that the businesses which Folk2Folk typically lends to are ones that tie the fabric of the communities together, such as hotels, pubs, wedding venues, dairy farms, or golf clubs.
“By creating jobs, it means people can spend more; it’s all about creating good social outcomes.”
Live and kicking
It won’t sound glamorous, but the loans are often used for organisations that provide basic infrastructure to keep towns and villages alive, such as ensuring an area has internet connectivity, or keeping a school or a bus route open.
The lack of government spending on infrastructure is certainly a hot topic at the moment, but Cross reckons platforms like Folk2Folk can give local areas the bump they desperately need.
“If local people are investing for a return in businesses which they eat in and buy from, that has got to be a positive post-Brexit solution.”
A large proportion of the businesses that use Folk2Folk are startups that have been starved of funding, largely because they don’t have a long-standing track record.
“Banks are saying no, but we like to say yes as much as we can,” says Gazeley. “We like to give businesses an answer quickly, so we can give them certainty.”
It’s essentially about closing the circle, because once a borrower has set up their successful business and has some spare cash kicking around, they will often become investors. And 90 per cent of Folk2Folk lenders end up reinvesting in other companies at the end of the loan.
Cross says people come back because they understand the product. “It’s simple and transparent, and there are no hidden fees.”
He says that one of the huge problems in the investment industry is the lack of tangibility.
“You might give your money to somebody (a financial adviser), to give to someone else (an investment manager), who gives the money to someone else (a fund manager), and they are all invariably trying to make financial gain.”
But with Folk2Folk, investors are able to see the progress being made with their money, because they are investing in local businesses they might drive past everyday. You might see a derelict pub at the end of your street, for example, go back into business. “It’s simple and sustainable,” Cross says with confidence.
Too good to be true?
I remark that this all sounds too good to be true. No doubt my years as a financial journalist unpicking complicated jargon and reporting on the misbehaviour of firms has brought out the cynic in me. And Cross admits that there is a lack of trust in the financial services industry which needs to be tackled.
“Whether it’s about wanting to be bigger or trying to be clever, somewhere along the line the financial services industry has forgotten whose money it is that they look after.”
Purpose beyond profit
And while Folk2Folk’s 55 members of staff have backgrounds from various corners of the financial world, the company has a clear drive to separate itself from the ruthlessness often associated with the investment industry.
Ultimately, it’s a company with a conscience, and one that seems to have a resounding purpose beyond just making money.