A Self-Employed Investor’s Guide to Finance

By: Aaron Robbins0 comments

Accessing finance as a self-employed person in Australia doesn’t have to be a pain, let us introduce you to Caveat Loans; a self-employed property owner’s investment pain relief.

If you’re self-employed, then chances are that you find it incredibly difficult to access finance, and you’re not alone; there are over one million independent contractors in Australia.

Diverse Finance Solutions works with many Aussie businesses, including those who are sole traders — we are excited to unpack how a Caveat Loan could be your building block to investment as a self-employed person.

Why is it hard for Self Employed people to access finance?

Despite being so many self-employed businesses contributing to Australia’s economy, banks and traditional lenders force self-employed people to jump through ‘horrendous hoops’ just to get a business loan.

There are a few reasons why banks and other lenders make business finance so tricky for self-employed people, and most of it has to do with protecting themselves as an institution around risk.

Proof on paper

When someone is employed by a company, there is a very clear paper trail of when they were employed, how much salary they receive, the conditions on which they’re employed and a very consistent pay history of remuneration.

With self-employed people, sometimes paperwork is the last thing on their mind, or what they want to keep on top of, after pouring hours of their time and energy into their craft or profession.

Keeping on top of Business Activity Statements (BAS), tax returns, GST register, Profit & Loss Statement, and Bank Statements can be a real struggle — and finding the volume required for bank loans and their arduous application process can feel impossible.

At Diverse Funding Solutions, our application process is hassle-free, and we don’t need the mountain of paperwork that’s usually required; this is one of the many advantages of accessing private lenders like us.

Downplaying your income

If you’re working for a company, then third parties (such as banks) can be quietly confident in your job security, whereas when you work for yourself, your entire income is reliant on one person — you!

For this reason, other lenders will often downplay your income by looking at multiple years’ worth of income and choosing the lowest-earning year as your base income for the purpose of servicing a loan.

This method is particularly unhelpful for self-employed people who are just starting out or who have been seriously impacted by the recent COVID pandemic or natural disasters across the country.

Alternative Options

Sometimes, if the loan you’re applying for is out of reach according to the lender, they will counteroffer you with other loan types, which are usually much higher in terms of interest rates, or more inflexible when it comes to early repayment.

This is one way that banks try to extend an olive branch, but it’s not always the right move for you, particularly when you’re looking at borrowing money to invest.

You need flexibility, which is why a caveat loan can be a fantastic solution to accessing funds for investment.

Why is a caveat loan a good option for self-employed people?

Caveat loans are known as fast finance, and the reason they’re fast is due to how uncomplicated the private funding application process is.

Looking for funds to invest means that you’re interested in building your capital and working towards a stronger financial future, which is why we are happy to support you as a business owner come investor.

Our caveat loans are well suited to self-employed individuals for the following main reasons:

Flexible lending criteria

Private lending affords the ability to be flexible when it comes to its criteria for caveat lending.

Whilst still operating under an Australian Credit Licence, we don’t rely on a complicated and rigid process for assessing your application.

Of course, we want to see that you have the ability to repay your loan, but we do that by setting affordable repayment schedules and devising a suitable exit strategy to have the loan repaid.

Minimal paperwork

When you apply for a caveat loan through DFS, we don’t ask for you to go to the ends of the earth (or your filing cabinet) for loads of bank statements or revenue forecasts.

We don’t even require a formal property valuation and don’t have a pre-approval application to go through before your final loan approval.

This is the fundamental difference between a private lender and a traditional lender when it comes to getting a business loan, even though both need to have an Australian Credit Licence.

Our fast and easy approvals are what allow us to get funds quickly to you, we can approve our caveat loan applications within 48 hours!

No credit check

Many of our clients find it reassuring that our loan process is such that we don’t rely on credit history to determine your suitability for borrowing funds.

Personal bad credit isn’t a reliable indicator of someone’s ability to repay a business finance loan in the future (not to us, anyway).

That’s why we look beyond your credit file and look for a viable strategy to have the loan repaid.

Understanding how fast caveat loans work

Caveat loans work as a short term loan that uses a real estate property to secure a loan.

If you’re a property owner with equity in an existing property, then a caveat loan can release equity of up to 75% of the total equity amount that’s tied up in your property.

Property owners who own their property outright can potentially get a caveat loan amount of up to 75% of their property value!

Caveat loans settle faster than most other loans in Australia, which is why they’re often referred to as fast caveat loans.

How long is a short term caveat loan

A caveat loan usually has a loan term of 12 months, hence being referred to as a short term caveat loan.

If your financial situation calls for a little extra time, then we can work with loan terms that best suit you.

How are caveat loans secured?

We register our lender’s interest on your security property by placing a legal caveat on your property’s title deed.

The beauty of this is that we don’t need to gain the permission of your home loan lender or even second mortgage lender, if you have an existing mortgage on the property, before using the property as security, too.

Provided you have sufficient equity in your property, then we can provide sufficient funding to you, for your investment needs.

It’s important to note though, that we can’t accept overseas properties as security on your caveat loan application, due to differences in legal jurisdiction abroad.

What are short term caveat loans used for?

Property buyers and property developers are known for using short term caveat loans to secure their next property purchase.

Self-employed business owners can benefit from using the equity in their existing home as leverage to get the funds together as a deposit on an investment property.

You might even use a caveat loan to help fund the purchase of a new property before the property sale of your existing place goes through.

This can be a much simpler option than second mortgages or bridging home loans.

Other business owners use caveat loans to help smooth their cash flow, or access an injection of working capital into their small business.

There are a range of business purposes and personal, that a caveat loan can provide the funds for.

Caveat Loan Interest Rates

Loans for a business purpose sometimes come with exceptionally high interest rates.

The interest rate on a caveat loan through DFS can be as low as 0.77%pm, which means that you may actually save interest, compared to other funding options.

Good to know: Competitive interest rates aren’t the only way you can save with Diverse Funding Solutions, we also have full transparency, which means no hidden fees, and we operate through an Authorised Credit Representative.

Do I need legal or financial advice to get a caveat loan?

Generally, as a sole trader business structure, you are responsible for all of the decision making that comes with owning a business.

It’s only diligent to make sure that a caveat loan is the right choice for you.

At Diverse Funding Solutions, we can’t offer your financial advice, but we can offer outstanding knowledge, experience and excellent customer service when it comes to business loans such as caveat loans.

To apply for a caveat loan today, or discuss how a caveat loan can give you the cash flow you need to make your next investment move, simply fill in your details or get in touch with one of our many Australian offices.

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