Advice and Opinion

Bridging and short-term loans catching the eyes of property investors in SA

Improved growth is predicted for South Africa’s non-bank lending sector for the second half of 2015. According to Gary Palmer, CEO of Paragon Lending Solutions, a non-bank short-term commercial lender, this outlook is as a result of the weakening economy, which is causing South African banks to continue to tighten their lending restrictions.

“This is in turn resulting in many high net worth individuals and property investors approaching alternate lenders to obtain loans.”

Palmer says that bridging finance and short-term lending from alternate lenders is the answer to most short-term loan needs, as this service offers the opportunity to bridge the gap when financing is needed and capital is easily accessible or liquid. He explains that these funds are obtainable within a few days of applying for the loan. “Often one needs to be in a position to take advantage of these prospects, however, due to the long lead times between finalising the paperwork from a transaction and obtaining the capital, which can take months, bridging finance from alternate lenders is often needed to provide quick access to funds.”

He says that earlier this year the South African property market showed signs of improvement and that despite this it is not known for how long this will continue for, especially with more interest rate hikes on the cards. Nonetheless, Palmer says that today sellers have more options and buyers therefore need to make decisions quickly and have immediate access to capital in order to secure the transaction. “There are two types of short-term funding available to the South African market – traditional bridging finance and short-term secured asset based lending. Short-term secured asset based lending allows for a longer term exit date for the lender, as a result of long-term finance not being in place. When opting for secured asset based lending you are required to only pay back the interest each month and the full loan amount at the end of the lending period. When applying for traditional bridging finance, there is a guaranteed exit in place as the long-term funding has already been arranged or the sale of the property has been secured.”