Caveat Loan Deep Dive: all there is to know about Caveat Loans

By: Aaron Robbins0 comments

If you’re short on cash, caveat lending could be the answer to many property owners’ short term finance needs.

If you’re dipping your toes in the water on whether to take up a caveat loan or not, let us take you on a deep dive into caveat loans.

Whether it’s to improve cash flow, fund your next investment property, or start up a new business, at DFS, we’ll have you swimming in caveat loan knowledge as we comprehensively answer the most commonly asked questions about caveat lending.

How do caveat loans work?

Caveat loans are a short term finance solution that allows property owners to leverage the equity in their existing property valuation to lend funds for a range of purposes.

They’re short-term loans that can add long-term benefits to your personal or business success.

A caveat loan works similarly to a second mortgage, where the equity in a real estate property is used to secure further lending.

However, there are a number of differences between second mortgages and caveat loans.

Caveat loans in Australia are known as fast finance due to how quickly they can be funded. At DFS, we can fund your caveat loan in as little as 24 hours.

What can I use a short term caveat loan for?

If you need cash for a business purpose, a caveat loan may be exactly what you’re looking for. While real estate property is used as the security, the loan purpose doesn’t need to be anything to do with the security property at all — you’re free to use the money as you see fit.

Many Australians use business caveat loans to provide sufficient funding for:

  • Stabilising cash flow.
  • Covering one-off large payments such as paying off a tax debt.
  • Property development (caveat loans are commonly used by property developers).
  • Bridging the gap between a property sale and property purchase. Property buyers can even use a fast caveat loan to get the upper hand on buying an investment property.
  • Renovating or upgrading a home or business to put up for sale.
  • Other business purposes such as renovation, expansion or buying goods and stock.

What loan terms are available with short term caveat loans

Because a caveat loan is a short term loan, you can expect to have a maximum loan term of 24 months. The loan term can be extended, though, if need be.

Private lenders aren’t bound by the red tape that traditional lenders are, so there’s lots of flexibility to negotiate terms that suit you.

Will I be approved for a caveat loan if I have bad credit?

The fast and easy approvals that DFS offer are because we provide caveat loans through private funding.

What this means for you is that if you’ve got a dismal credit history, a bad credit rating, or even a small business that’s just starting up and you’re finding it hard to get a business loan through other lenders, you needn’t hesitate to apply for a caveat loan through DFS!

We don’t run a credit check on you or your business — instead, we simply look to devise a clear strategy on how you’ll pay the loan back.

In place of relying on complicated lending criteria and your past creditworthiness, we’re more interested in looking at your ability to repay the loan.

How is a caveat loan application processed?

A caveat loan application with Diverse Funding Solutions is proudly hassle-free.

The benefit of private lenders like us is that we still don’t need to drag you through arduous application processes that can take months to finalise.

Once the caveat is set up, we can fund your loan in as little as 24 hours!

No need to undergo a rigorous pre-approval application process, our loan process is simple.

Unlike when you apply for a first mortgage, you won’t be asked to submit lengthy tax returns, bank statements or revenue forecasts — we’ll only ask you for the information that we really need and work from there.

Obviously, we want to make sure that there is sufficient equity in your security property and that you have the ability to pay the loan.

We do look at your property value, but don’t need to wait around for a professional property valuation or appraisal.

We cannot accept overseas properties as security, however.

What is a caveat loan exit strategy?

Devising a clear and acceptable way for you to repay your caveat loan is at the core of our application process — this is called an exit strategy.

The exit strategy demonstrates how the loan is to be repaid, and the repayment schedule will set out when the loan is to be repaid.

If a lender is an authorised credit representative, then they are bound by strict lending laws and criteria, whereas for private lenders, they are afforded much more flexibility as the same policies don’t apply — provided there is either a sunset clause or a clear exit strategy.

Some examples of strong exit strategies may be:

  • Reliable revenue forecasts for businesses.
  • The sale of stock or goods.
  • An inheritance or expected funds to be received from a deceased estate.
  • A property or business sale.
  • Other lump sum payouts such as from marital separation, insurance proceeds or company distributions or dividends.

How do caveat loans settle so quickly?

Caveat loans settle faster than other loan products and loan types, including bank loans, due to the flexibility that funding privately affords and the hassle-free application process.

A caveat loan doesn’t technically release equity, it simply uses the equity to secure the loan, so once the legal caveat is put on the title of the property used for security, funds are able to be released almost instantaneously.

How are fast caveat loans secured?

Caveat loans are secured by equity within an Australian real estate property (overseas properties can’t be used as secured for a caveat loan).

Because the legal caveat sits behind any existing mortgage, the caveat lender doesn’t require permission from the lender of the first mortgage.

Instead, the lender’s interest is legally registered on the title of the property.

Can my property be sold if it has a caveat on it?

A caveat is legally protected, which means that while a caveat loan lender cannot enforce the sale of the property to satisfy any defaults on your loan, a sale of the property is restricted while the caveat is in force.

What is the difference between caveat loans and second mortgages

We recently wrote about the fundamental difference between caveat loans and a second mortgage.

In a nutshell, the lending criteria, loan term, flexibility and how the property is secured differ between caveat loans and second mortgages.

What is the interest rate on a caveat loan?

The interest rates offered on caveat loans vary depending on the loan amount, loan term and strength of your application.

You may be able to save interest when you apply for a caveat loan with DFS compared to other lenders.

Get a one minute express quote, now!

What is private lending?

Private lenders are simply non-traditional lenders such as companies who have sufficient economic resources to lend money to businesses and individuals.

This is why many small business loans are funded privately, as business owners often have difficulty in obtaining loans from traditional lending institutions such as big banks.

At DFS, we have access to a pool of private funds from private loan lenders.

If you’re ready to experience the best customer service available when it comes to applying for a caveat loan, contact the team at Diverse Funding Solutions, today.

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