The nuts and bolts of bridging finance

Nicola Faurie, relationship manager at Bridge Flow.

Property buyers and sellers are often unsuspecting of additional costs that will be incurred when buying and selling a property, and are caught unawares when they unexpectedly need to find addition funds to pay an attorney or the municipality to facilitate the transfer process.

“Bridging finance has been around for a while to assist property sellers to overcome these shortfalls, but many are unaware of this as a solution,” says Nicola Faurie, relationship manager at Bridge Flow, a Cape Town-based bridging finance company.

“Sometimes it’s a case of buyers being ill-informed and not realising the full meaning and extent of certain clauses in an offer to purchase. Sellers, too, are also often unaware that costs such as rates and taxes must be settled before transfer can take place and are often caught unawares.”

Faurie explains that the bridging finance facility on a property transaction can be used to cover expenses such as the deposit on the purchase price of a new property, transfer duties, levies, outstanding rates and taxes, and moving costs.

It can also be used by the property seller for any purpose, for example to buy a car that is on special for a limited period of time.

“Bridging finance is available only once the sale is secure, that is, when the deposit has been paid, the bond approved and the balance of the purchase price has been secured by means of a bank guarantee,” says Faurie.

“Buyers can apply for bridging finance once all the above are in place and as long as they are selling an existing property. Once all the paperwork has been received and no problem issues are flagged, bridging finance companies are usually able to process and approve a loan within a few hours.”

In the case of Bridge Flow’s process, Faurie says that if the credit committee has received the required paperwork before 2pm, a real-time transfer of the funds can take place on the same day.

“Both buyer and seller are then in the hands of the deeds office as they await transfer of the property, which can take from two to eight weeks and sometimes longer if there are any complications. Once the property is transferred and registered, the bank releases the funds for the mortgage loan and the bridging finance debt is settled. This means that any bridging finance is short-term and is settled in a lump sum.

“Bridging finance has been very successful in the property market as a solution while funds are locked in a property deal. It’s surprising that banks don’t offer similar solutions on property transactions,” says Faurie.