In the first newsletter of 2011 I would like to explain to you how a bridging finance transaction work and what to be on the look-out for when entering such a loan agreement.
When in a business you need to be registered with the NCR (National Credit Regulator) as a credit provider. The NCR do provide certain limits of annual interest rates depending on the type of loan.
These interest rates can be viewed on the website of the NCR.
However a loan between to companies falls out of this law and the prescribed interest rates are not applicable to these loans.
Our company, 1 Stop Financial Services, provides bridging finance and debtor factoring to companies.
Here are some guidelines to the steps to follow when providing bridging funds.
When a company apply for a loan, my first question is ALWAYS: Can you provide a bond free property as security. If the answer is no, I am not interested.
In case of factoring you will cede the debtors to you and take property as security.
Once I established the securities, the client need to provide me with cash flow projections and the normal FICA information. Our loans normally stretch over a maximum of three months.
When I am satisfied with the applicant our attorney will draw up the necessary loan agreement and VERY IMPORTANT register a first bond in favour of ourselves.
DO NOT just keep a title deed, register the bond.
Let me explain this last sentence, because it often confuse people.
This bond registered in favour of yourself would be same as if a bank would loan money to you for a property and register the bond in favour of them. It causes the client not to be able to sell the property before the client repay the loan amount.
The owner (director) of such company applying for the loan will also need to sign surety for this loan.
REMEMBER: The client need the funds and you are in charge of this opportunity. Do not settle for anything less than the above requirements. There will always be another opportunity, people (company) always need finance. DO NOT let money influence or persuade you.
Use an attorney for this complete function, because he/she will take responsibility for their loan agreements.
Eventhough you may not have the intention to start a bridging finance company I feel it might give you some insight on the subject.
For INVESTMENT OPPORTUNITIES contact me
Feel free to contact me may you need more information on the subject.
All the best for February
Yours in tax
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