What is Bridging finance in South Africa?

Bridging finance is a type of finance used to cover short-term gaps in funding.

For a business owner, bridging finance refers to short-term funding to cover costs while you wait for expected funds to be released. In this way, bridging finance is a cash advance to you.

In South Africa, bridging finance can also refer to the proceeds of a property sale. Based on the sale of your property, a lender will grant you a portion of the proceeds of the sale.

How to access bridging finance?

To access bridging finance, you will need to prove to the lender that you are set to receive funds. In other cases, you can access bridging finance to purchase goods. This means the lender might pay the supplier on your behalf.

Some funders will ask for collateral when you apply for bridging finance.

Once you have received the expected funds, you repay the lender. Bridging finance repayments include the original amount you borrowed, plus the cost of the bridge loan.

Do banks offer bridging finance?

In South Africa, some banks provide bridging finance so business owners can cover cash flow gaps. Remember that banks might require collateral or restrict the use of your bridging finance, e.g., must be used to pay suppliers directly.

Business funding specialists at Lulalend recommend you have clear time frames for when you need the bridging finance. If you need capital urgently to take advantage of a business opportunity, you will need bridging finance immediately. You will need to prioritise fast access to funding.

How does bridging finance work in South Africa?

Your agreement with the lender will determine the term of your bridging finance. When you receive the money, you pay back the bridge loan, along with costs.

Lenders will need proof of the funds due to you. This proof includes secured contracts or purchase orders.

Alternative lenders offer unrestricted bridging finance. What this means is that you are free to use the bridging finance for any business expense.

How much interest do you pay on bridging finance?

The cost of your bridging finance depends on two things: the funder and the total loan amount.

Lulalend urges SMEs to take note of the lender’s policy on early repayments. You might have to pay penalty fees if you want to settle before your agreed term. This is frustrating if you need an overnight facility, for instance.

How long does it take to get a bridge loan?

The exact time frame depends on the lender and the type of bridging loan you need.

When it comes to property sales, you could have access to your bridging finance in a few days. Alternatives lenders, for instance, release funds into your account in a matter of hours.

Who offers bridge loans?

Banks, alternative lenders, and government funders provide bridge loans.

Lulalend’s business funding specialists warn SME owners against unscrupulous lenders. Responsible lenders base their credit judgements on whether or not you’re able to repay the debt. Stay away from lenders that promise to grant bridge loans even if you’re blacklisted.

Are bridge loans a good idea?

SMEs are often held back by inadequate cash flow. Bridging loans smooth the ups and downs that come with running a business.

Bridging finance closes the funding gap for small businesses. A bridge loan gives you the funds to take advantage of new opportunities, like expanding your business or pursuing a new contract.