In South Africa and abroad, the popularity of bridging loans has increased dramatically over the past two to three years.
Overseas too, this type of loan is becoming much more common. In the UK, the quarterly publication Bridging Trends noted that bridging loan volumes in 2018 were £232.8 million higher than in the previous year – totalling a whopping £766.9 million (around R14.2 billion)! The bridging loans market is much larger than many would have guessed.
Partly, this is because the number of reputable bridge loan providers has increased in recent years, and more people are becoming aware of bridging finance as an alternative.
Also though, bridging loans have certain advantages that make them particularly attractive.
Wait…so what is a bridging loan?
Often, there’s a potentially long interval between the time you secure a sale or settlement and when you actually get the funds that are owed to you.
During this time, you may have to cover a range of expenses, including costs directly associated with the transaction. Bridging finance is useful for seeing you through this period.
What can you get a bridging loan against?
A bridge loan may be given in any situation where funds are owed but there’s a waiting period before they’ll be paid.
For example, funds might be owed to you as part of a legal settlement, for work on a project or for sale of an expensive asset.
The most common type of bridging finance in South Africa is a loan against sale of a property. At lamna, we offer this form of bridging loan, as well as loans against Road Accident Fund (RAF) settlements.
What are pros and cons of bridging loans?
Advantages of bridging loans include:
- fast, easy access to the funds you need
If you qualify for a bridging loan – for example, because you’re awaiting a settlement of funds for property you’ve sold – you can access the loan funds very quickly indeed. The funds may even make it into your account on the same day you apply.
- low risk, for both parties
A bridging loan is secured through a pending settlement of funds. Generally, it’s understood that the loan amount and agreed interest will be repaid from these funds, once they become available. This means that when you take a bridging loan, you won’t be putting your other funds, income or assets at risk. For the same reason, the loan provider doesn’t need to complete a lengthy application process.
Depending on your perspective and needs, a disadvantage is that bridging finance is available only to those awaiting confirmed settlements of funds.
To get this type of loan through lamna, you must have sold and transferred a property but be awaiting registration of the transfer by a Deed’s Office – a process that can take three months or sometimes even longer.
Alternatively, you must have a settlement agreement or court order confirming a pending settlement by the Road Accident Fund (RAF).
Why people take bridging loans
According to Bridging Trends, bridging loans in the UK are most often obtained to fund property refurbishments or for business purposes.
In South Africa, bridging loans are commonly used to help cover costs in the period between selling a residential or commercial property and receiving the sale proceeds.
Bridging finance may also help cover medical, legal and other costs in the period before a legal settlement of funds is finalised.
Why get a bridging loan from lamna?
Advantages of getting bridging finance from lamna:
- we’re a trusted, registered credit provider (registration number NCRCP7428)
- our bridging finance service is fast, transparent and completely discreet
- our interest rates are competitive
- we comply fully with the terms of the National Credit Regulator
- we have physical branches in several major South African cities.
Find out how long you can expect to wait for a Road Accident Fund payout, along with an option for getting a loan in the meantime.read more
An overview of all the costs involved in selling your home in South Africa, and how bridging finance can help.read more
With a property bridge loan, you can access the proceeds of your property sale before the transfer process is completed.read more