Notarial bonds provide a lender/credit provider with a very strong form of security in terms of South African law, but they are widely under-utilised in the South African market.
 
The best known example of granting security by a borrower to a lender is the registration of a mortgage bond over the immovable property of the borrower such as its house, its office building or its farm. 

What is a Notarial Bond?

 A notarial bond is registered in the Deeds Office over some kind of tangible movable property that the borrower has put up as security for its obligations to the lender in terms of the loan. Typical examples of movable property bonded notarially are vehicles, jewellery, valuable artworks, and Kruger Rands, the goods/equipment of a business, animals and even the future accrual or offsping of animals, e.g. calves and lambs, a liquor license, game on a game reserve; stock-in-trade on the shelves of a retailer and a short term lease of immovable property.

Notarial bonds can be particularly useful as an alternative method of security. The first reason is that many borrowers have movable property that can be used as security,  but they are unable to “unlock” the value of these movables because most lenders only want security over land (in the form of a mortgage bond). A lender who is willing to take security in the form of a notarial bond over movables (which is just as secure in law as a mortgage bond over immovables) will have a much wider target market and can thus attract and do more business.

The second reason that notarial bonds are particularly useful in the South African context, is that the borrower remains in possession of the movable property even though it has been bonded in favour of the lender. This means that more borrowers are willing to bond their movables (as opposed to a situation where the property concerned would need to be handed over physically to the lender as in the case of a pledge), because the borrower can retain physical possession of the movable assets, for instance, if the borrower uses such assets to conduct his business.

As a borrower you have a choice to grant a special notarial bond over specific tangible movable assets or a general notarial bond over all your tangible movable assets.
Should the borrower fail at any time to timeously comply with its obligations under the loan agreement, a special notarial bond will (prior to the borrower becoming insolvent) permit the lender to sell such assets and use the sale proceeds to repay the outstanding amount owed by the borrower under the loan, without having to obtain prior judgement against the borrower.
If the borrower granted a general notarial bond to a lender and a default under the loan occurs, then the lender will need to perfect its security and will be able to procure a sale of the tangible movable assets of the borrower after (i) it has successfully approached the High Court for a court order directing that such assets should be attached and (ii) physical possession of such assets is obtained through the execution of such order by the sheriff.

Credit providers and lenders should make better and more wide-spread use of this form of security as many borrowers do not have immovable property to mortgage as security for the repayment of a loan.