A bridging loan or “bridging finance” is a short term loan, typically taken for a short period between 2 weeks and 12 months with a view to moving to longer term financing or exit strategy.
Bridging loans are generally used in property purchases / acquisitions when a decision needs to be made quickly. Bridging loans can help too:
Bridging loans are generally repaid when a property has sold or alternatively refinanced through a traditional lender. A bridging loan is known in the lending market a non-standard loan as its a short term loan with unusual circumstances.
Bridging loans in the South Africa can be used not only for property, but also for businesses too. For businesses, bridging finance is generally used when a company requires additional funds to help boost its cash flow or for acquisition purposes. Bridging loans for property can be used to break property chains and provide a short term finance solution where there is a delay between sale and completion dates.
Another typical reason why bridging loans are taken, is when properties are purchased at auction, additionally developers & landlords can use bridging finance for development or renovation purposes.
Advantages of Bridging Finance
In South African law immovable property is transferred via a system of registration in public registries known as Deeds Offices. Given the delays resulting from the transfer process, many participants in property transactions require access to funds which will otherwise only become available on the day that the transaction is registered in the relevant Deeds Office.
Bridging finance companies provide finance that creates a bridge between the participant's immediate cash flow requirement and the eventual entitlement to funds on registration in the Deeds Office. Bridging finance is typically not provided by banks.
Various forms of bridging finance are available, depending on the participant in the property transaction that requires finance. Sellers of fixed property can bridge sales proceeds, estate agents bridge estate agents' commission, and mortgagors bridge the proceeds of further or switch bonds. Bridging finance is also available to settle outstanding property taxes or municipal accounts or to pay transfer duties.