Bridging finance in South Africa: how it works
Short answer
Bridging finance is a short-term loan that gives a property seller, or their estate agent, part of the money from a sale before transfer is registered. The lender advances part of the nett proceeds, up to 80% in the Attorneys Fidelity Fund’s example, and is repaid from the proceeds on registration, against the conveyancer’s undertaking.
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What is bridging finance and how does it work?
A property sale pays out only when the transfer is registered in the Deeds Office, and the transfer process takes time. Bridging finance fills that gap. In a 2015 article, the Attorneys Fidelity Fund describes it as “a short-term loan” that “creates a bridge between the participant’s immediate cash flow requirement and the eventual entitlement to funds on registration in the Deeds Office”.
The same article lists who uses it. Sellers bridge their sale proceeds, estate agents bridge their commission, and owners bridge the proceeds of a further or switched bond. It can also pay outstanding rates, municipal accounts or transfer duty.
In outline, it works like this:
- The sale is signed and a conveyancer is handling the transfer.
- You apply to a bridging lender for part of what you will receive.
- The conveyancer gives the lender a written undertaking to pay it from the proceeds on registration.
- The lender pays the advance, often into the conveyancer’s trust account for your benefit.
- On registration, the conveyancer pays the lender back from the proceeds, with its charges.
How much can you get? A worked example
Lenders work from your nett proceeds: the selling price less what you still owe on the bond. The Attorneys Fidelity Fund says they “usually can advance up to 80% of those nett proceeds”, and gives this example:
| Item | Amount |
|---|---|
| Selling price | R1 300 000 |
| Balance owing on the existing bond | R1 062 354.26 |
| Nett proceeds | R237 645.74 |
| Most that can be advanced (80%) | R190 116.59 |
What you owe the lender is the advance, plus the finance charges and any other charges in the agreement.
How long does bridging finance take to pay out?
There is no set time. The Attorneys Fidelity Fund describes bridging finance as available at short notice and simple to apply for, so the payout mostly depends on how quickly the lender has the documents it asks for.
The loan then runs until registration. Check what your agreement says if registration is late.
What does bridging finance cost?
More than an ordinary loan. The Attorneys Fidelity Fund calls these “convenience loans” with “relatively high interest rates”, and says “any convenience service attracts a premium charge”.
The cost is usually quoted as a fee plus interest, and it varies from lender to lender. Get written quotes from more than one lender and compare the total you will repay before you sign. Members of the Bridging Finance Association of South Africa agree in their code of conduct to make their fees available before an agreement is concluded, including how the fees are worked out and any cancellation or default charges.
How much deposit do you need for a bridging loan?
A seller doesn’t pay a deposit for bridging finance. The lender advances part of the nett proceeds you are already due from the sale, up to 80% in the Attorneys Fidelity Fund’s example. The rest of the proceeds come to you on registration, after the lender is repaid.
What documents does a bridging lender ask for?
Each lender sets its own list. This is one lender’s list, from a 2011 Supreme Court of Appeal judgment; yours may ask for more or less:
- A request for bridging finance and a mandate to pay, signed by you
- Your identity document
- A copy of the sale agreement
- A letter of undertaking from the conveyancer that the advance will be repaid on registration of transfer
Ask your lender for its list before you apply, so the conveyancer can prepare the undertaking at the same time.
For bridging lenders: getting the paperwork in
For bridging lenders, getting the paperwork in is where the days go. Every application waits on the same few documents from two people: the seller and the conveyancer.
How Kwalify helps: Kwalify asks the seller for their details and documents on WhatsApp, and the conveyancer can take part by email. It checks each document against your rules, for example that it is the right kind of document, readable and not expired, and that the name and ID number match. Anything unclear goes to a person on your team, and Kwalify never declines an application by itself. It sends reminders until each document is in, and gets the request signed with a one-time code. Join the waitlist
See how it works end to end, or how applications on WhatsApp differ from a chatbot. For the signature itself, read about electronic signatures.
FAQ
Do banks offer bridging finance?
Usually not. The Attorneys Fidelity Fund says bridging finance is typically not provided by commercial banks. It comes from companies that specialise in these short-term loans.
Can an estate agent get bridging finance on their commission?
Yes. The Attorneys Fidelity Fund lists estate agents bridging their commission alongside sellers bridging their sale proceeds. The agent is repaid from the commission when the transfer is registered.
What happens if the sale falls through?
There are no sale proceeds to repay the loan from, but the loan and its charges are still owed. The Attorneys Fidelity Fund warns that a conveyancer who signed a standard undertaking can be held liable too. Read the agreement before you sign.
Is there an industry body for bridging lenders?
Yes. The Bridging Finance Association of South Africa has a code of conduct for its members, but the Attorneys Fidelity Fund notes it is not a statutory body. Check a lender before you sign.