19 August 2021

What financing options are available for community schemes?

Submitted by: Aidan van Vuuren

The key to running a successful body corporate or homeowner association lies in good financials and cash flow management. While this may be simple enough to say, the reality is that situations sometimes arise where a community scheme finds itself without enough funds. It’s in these situations that a community scheme will need to borrow funds. A good cash flow is not always up to the community scheme, as other factors can lead to a shortage of funds, such as levies not being paid. In these instances, a body corporate will need to source the funds required to solve the issues at hand, in the form of a loan.

Propell offers two innovative body corporate credit solutions for community schemes that require extra funds. Let’s take a look at why community schemes would need to borrow money and how our Debtor Finance and Project Loans solutions are the ideal way for these schemes to get back into a good financial position.

Why would community schemes need extra funds?

Property maintenance is crucial in a community scheme, to prevent major problems such as water leaks and major repairs. The body corporate is responsible for ensuring that adequate property maintenance takes place in the common property areas of the scheme. However, there are often unforeseen circumstances, and the scheme may need to do large repairs to common property, security updates or any other major maintenance projects that weren’t planned. In this case, a large sum of money is needed right away, and it’s likely that the scheme’s reserve funds aren’t enough. So, the scheme will need to find the funds somewhere else, which will involve taking a loan and paying it back over time.

Another scenario that could lead to a community scheme needing to borrow money involves levy payments. Levies are important for a community scheme’s cash flow, and if some owners fall behind on their levies, this can leave a community scheme in arrears with service providers or other payments that need to be made. Often, these payments cannot be avoided or prolonged, for example, utility payments. In this case, a community scheme will need access to extra funds, to settle any bills or debt that has been accrued due to the cash flow disruption. These funds will allow them to settle the debt and get their cash flow back on track to regain a balanced financial position.

How can community schemes get access to extra funds?

Propell has two useful solutions for community schemes that cover various scenarios and give a scheme the ability to solve any financial issue that may arise.

The first solution is the Project Loans option,  ideal for community schemes that need immediate access to funds for maintenance, upgrades, repairs and energy-saving solutions. Project Loans can also be used for things like municipal arrears or to fund professional services such as legal fees and consulting fees. How does it work? It’s simply a revolving loan facility that community schemes can access for extra funds whenever they need it. Community schemes can choose the amount they need and enjoy flexible repayments terms for up to 5 years. Interest is only charged on what is used, and there is no penalty for early settlement. Getting started is easy, simply contact Propell now and, once your community scheme is approved, you’ll have immediate access to the funds. Click here to find out more about Project Loans.

The other solution from Propell is Debtor Finance, which is used by community schemes that need a steady cash flow, as it covers the shortfall left from owners who are not meeting their levy obligations. How does it work? Debtor Finance is a revolving loan, totalling up to 80% of levy arrears which is delivered as an advance initially. Thereafter, the community scheme will need to update Propell on the levy arrears situation and Propell can determine whether the community scheme needs further advancement or not. This solution allows community schemes to meet their budgets, without asking owners for more funds or using reserves. Only owners in arrears with their levies are liable for interest payments to the community scheme Debtor Finance secures the monthly cash flow of the community scheme without placing any financial burden on the owners. Click here to see how Debtor Finance can be the ideal solution for your community scheme.

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