LENDING FUNDS
BC Funding Solutions performs the role of facilitator between the Community Schemes requiring loan funding, and you, the lender, willing to lend funds to, or in respect of, these Community Schemes. Any individual, corporate entity or Trust, can lend funds to Community Schemes. BC Funding Solutions sources funding leads, provides, facilitates and manages the legal documents between the two parties and monitors the collection and repayment to our lenders, until fully repaid.
The origination process follows defined lending criteria and is ultimately supported by legislation and contract. Once you, as the lender, are satisfied with the loan and have signed the legal documentation, you deposit your funds into an independent cash custody account administered by GAEL Fund Services (Pty) Ltd.
BENEFITS TO OUR LENDING CLIENTS IN THIS ENVIRONMENT INCLUDE:
Direct ownership in Community Scheme loans;- Interest returns that are not correlated to equity markets;
- Prime plus interest returns;
- A fully managed process with no involvement required from our lenders;
- Full deployment of capital as costs are paid by the borrowers;
- Legislative and contractual protections (security cession of levies);
- Limited risk of non-payment.
Lending, loans and arrear levy debt claims are not financial products, as defined by the Financial Sector Conduct Authority (formerly known as the Financial Services Board) and, as such, are not regulated by the Financial Advisory and Intermediary Services Act No 37 of 2002 (as amended) (“FAIS Act”).
BC Funding Solutions’ role is to connect Community Scheme borrowers with lenders wishing to lend into this secured environment, and thereafter it is to monitor the collection and repayment of these loans to our lending clients.
LENDING CRITERIA:
Community Schemes undergoing capital improvement, maintenance projects and / or suffering from non-payment of contributions from unit owners seldom have the required income to fully fund their obligations under the Community Scheme legislation or constitutional documentation.
The above forces the Community Scheme to decide to:
- Do without the required services to the common property, in contravention of the Act and / or constitutional documentation;
- Raise and collect a special levy – if they raise a special levy and the members contribute fully then the problem would be solved and there would be no need for the Community Scheme to borrow. If, however, the special levy is not fully paid then the Community Scheme would either need to raise a further special levy for the differential (this is where the subsidisation of the paying owners would occur); or
- Borrow the differential needed to maintain their obligations and; furthermore
- Loans are entered into with Community Schemes on the basis that they immediately institute levy collection protocols and commence legal action / debtor rehabilitation against non-paying unit owners.
BC Funding Solutions implements a defined set of lending criteria and follows a strict process when advancing funds to Community Schemes. BC Funding Solutions requires that a set list of documentation be submitted to BC Funding Solutions by the Community Scheme and / or its managing agent in order to enable BC Funding Solutions to assess the viability of a loan to a Community Scheme and complete an assessment on its financial position in order to confirm the underlying security of the Community Scheme.
LEGISLATION:
Ownership within a Community Scheme is an efficient and popular form of property ownership, especially amongst entry level and lower income owners, as it provides a very effective cost sharing mechanism for many of the essential expenses associated with property ownership. There are an estimated 75 000 Community Schemes registered in South Africa, with an average of 10-15 units per scheme. The estimated funding requirement of Community Schemes national is in the region of R15bn.
Whilst many Community Schemes are efficiently managed and are financially sound, many of them have levy defaulting unit owners and as a result struggle to function operationally, often leading to general decay of the building complex and therefore unit value. This is mainly as a result of the Community Scheme only being able to afford basic necessities whilst limiting maintenance and other common property services.
In the event that some owners do not pay their contributions / levies timeously, all unit owners in the Community Scheme are put at risk as the Community Scheme may not be able to continue funding essential services, such as:
- Municipal charges (water and electricity);
- Critical running costs (lift maintenance, security, etc.); and
- General upkeep (lighting, exterior maintenance and painting, gardens, etc.).
It is due to the non-payment of levies that a Community Scheme will need to borrow, in order to stabilise their cash flow and enable them to continue their required service delivery to the common property, the Community Scheme is either protected by legislation (in the case of Sectional Title Bodies Corporate) and / or by contract and case law (in the case of Homeowners Associations), at various levels, to ensure that any risk of loss to levy income recovery and / or loan creditor (capital or interest) repayment, especially where the levies have been ceded as security to the loan, is extremely remote.
To the extent any member of a Sectional Title Body Corporate is in default of, or in arrears with, their obligations in this regard, the Trustees are entitled, on behalf of the Body Corporate, to “charge interest on any overdue amount payable to the Body Corporate” (Rule 21(3)(c) of the Management Rules prescribed in terms of the Regulations to the Sectional Titles Schemes Management Act 8 of 2011).