Navigating the Community Scheme Lending Space: Practical Considerations

When purchasing a unit in a sectional title or community scheme, owners acquire more than just a physical property. They also assume a proportional share in the assets, obligations, and financial position of the scheme as a whole. In practice, this can mean exposure to historical arrear levy debt, accumulated municipal arrears, or the urgent need for funding to address maintenance backlogs or capital infrastructure projects.

In the current economic climate, many bodies corporate and homeowners’ associations are experiencing increased pressure on levy collections. Rising living costs, interest rate volatility, and consumer financial strain have all contributed to reduced cash flow and higher levels of levy arrears. Against this backdrop, accessing external funding has become an increasingly necessary tool for schemes seeking to remain financially stable and operationally compliant.

Historically, borrowing by community schemes has often been viewed with caution, and in some cases, outright suspicion. This perception has largely been shaped by the actions of unethical service providers and opaque pricing structures. The result has been a lingering cloud of misinformation and bias surrounding sectional title lending. However, when structured correctly and sourced from a reputable provider, loan funding can be both a prudent and cost-effective alternative to raising special levies or attempting to rebuild reserves over extended periods.

The legal framework supports this position. The Sectional Titles Schemes Management Act 8 of 2011 (STSMA) expressly empowers a body corporate, in terms of sections 4(e) and 4(f), to borrow money where this is reasonably necessary to perform its functions or exercise its powers. That said, the decision to borrow should never be taken lightly. Trustees and managing agents must ensure that they understand not only where to source funding, but also how to evaluate providers and proposals critically.

Selecting the right funding partner is fundamental to a successful lending outcome. Any reputable credit provider operating in this space should be registered with, and subject to, the requirements of the National Credit Act. Registration alone, however, is not sufficient. Trustees are encouraged to conduct meaningful due diligence before committing the scheme to any funding arrangement.

Digital platforms and peer review sites can provide valuable insight into a provider’s track record, service levels, and ethical standing. Equally important is an understanding that no two community schemes are the same. A credible funding partner should be able to offer solutions that are tailored to the scheme’s size, levy profile, arrears position, and long-term affordability, rather than adopting a one-size-fits-all approach.

Once a funding proposal is received, careful scrutiny of the terms and conditions is essential. A transparent proposal should clearly set out the interest rate, loan tenure, capital raising or initiation fees, administrative charges, and any other costs associated with the facility. For trustees without a financial background, interpreting these documents can be challenging, which is why independent advice is strongly recommended. Proper guidance can assist trustees in understanding the true implications of the agreement and in asking the right questions before approval.

Particular attention should be paid to so-called “hidden costs”. Unexpected legal fees, ongoing administration charges, or undisclosed costs are often at the heart of negative experiences with scheme lending and contribute significantly to mistrust in the market. Transparency at the outset is non-negotiable.

It is also critical to assess the total cost of funding rather than focusing solely on the advertised interest rate. In some cases, seemingly competitive rates are offset by substantial ancillary fees, resulting in a materially higher effective cost of borrowing than initially anticipated. A holistic assessment of affordability and long-term impact is therefore essential.

At STS, we pride ourselves on delivering ethical, transparent, and sustainable funding solutions to community schemes. We specialise in facilitating loan funding for bodies corporate and homeowners’ associations facing levy debtor challenges or requiring funding for municipal arrears, essential maintenance, or capital improvement projects where immediate cash contributions from owners are not feasible.

Our approach is centred on understanding the specific funding requirements and financial realities of each scheme. By working closely with trustees and managing agents, we structure solutions that balance affordability, compliance, and long-term financial health. Recognising the financial strain many schemes currently experience, we adopt a flexible and partnership-driven approach to funding, enabling clients to settle their facilities early without incurring early repayment penalties or charges. Recognising the financial strain many schemes currently experience, we adopt a flexible and partnership-driven approach to funding, enabling clients to settle their facilities early without incurring early repayment penalties or charges,

In an environment where financial resilience is more important than ever, informed borrowing, supported by the right partner, can play a critical role in securing the sustainability of community schemes well into the future.