Caveat Loans: A Case Study

By: Aaron Robbins

Caveat Loans: A Case Study

Intrigued by caveat loans but not sure how they could work for you?

With so many ways to utilise a caveat loan to your business’s advantage, it’s easy to get lost amongst the possibilities.

Let us help inspire a forward path down the caveat lending road, by sharing a case study from one of our many clients.

How a Melbourne couple used a caveat loan to buy a Bed & Breakfast

Not so long ago, a couple in Melbourne wanted to take action in realising their dream of opening up a Bed & Breakfast.

They were already in business, running a sound recording studio and owned a residential property with a property value of $1.4 million.

An opportunity arose just outside of Melbourne to purchase a suitable B&B, but they needed $200,000 to be able to make the purchase happen.

The mortgage on their property still had $625,000 owing, leaving $775,000 in equity, which is why they approached Diverse Funding Solutions to see if they could access some of the equity to cover the $200,000 they needed.

Shortly after calling us (in fact, the same day), we were able to provide them with an approval letter, subject to having their property valued.

In this case, the couple knew they didn’t want to be borrowing these funds long-term, as they were planning to refinance with a major lender within two years.

This not only guided their decision to request a 24-month caveat loan, but the refinancing plans made for a viable exit strategy.

The letter of approval from DFS enabled the couple to make an offer on their dream B&B!

The valuation of the security property was fully completed after only two days, and Diverse Funding Solutions funded their loan within three days.

This case study is just one of the many Caveat Loan arrangements that we help finance every day across Australia, and the reason that Caveat Loans have earned their reputation as ‘fast finance’.

Understanding more about short-term caveat loans

As one of Australia’s leading providers of fast caveat loans, we want to help business owners understand more about caveat loans – as they are unique from other loans, including second mortgages.

Unlike most business loans

Caveat loans are becoming more widely understood, however, they are opposite to most business loans in how hassle-free and quickly funded they are.

Most business loans are offered by traditional lenders, which means that businesses need to satisfy their complicated lending criteria, submit a pile of paperwork and wait for weeks, if not months, to get a response – and funding!

Diverse funding solutions are one of Australia’s leading private lenders, which means we work differently from a bank or credit union.

The uncomplicated application process is what allows fast approvals to get businesses funds quickly, and is the fundamental difference between us and other lenders.

DFS can approve your loan in as quickly as 24 hours!

Minimal paperwork required

When you apply for a caveat loan with DFS, the amount of paperwork required is far less than you may be used to.

There is no need to trawl through years and years worth of tax returns or track down your revenue forecasts.

Usually, we require only minimal documentation; a council rates notice, a mortgage statement and your identification to be able to satisfy a caveat loan application.

No credit checks

Due to operating under private lending, we also do not need to run a credit check, which may come as a relief to business owners whose personal circumstances have led them to bad credit.

Your credit file is not relied on to determine the likelihood of you repaying your caveat loan.

A viable exit strategy is determined (similar to the one we described above), and then repayment schedules are set on terms relevant to your unique situation.

Suit almost any business purpose

You don’t need to be purchasing a B&B for a caveat loan to work for you, the benefit of caveat lending is that it satisfies such a broad array of business purposes.

Some bank loans can restrict the use of funds, however, with a short-term caveat loan, you can:

  • Take advantage of discounts on bulk stock or inventory orders
  • Update your vehicle fleet
  • Buy equipment for your business
  • Renovate a business premises or prepare it for sale
  • Pay off tax debt or perform a debt consolidation
  • Boost your working capital or smooth out cash flow

Regardless of what your business requires funds for, the chances are that you need them in a timely manner, which is why a short-term caveat loan can be an excellent option for business owners.

Using your real estate property as security

A caveat loan is aptly named, as it is a loan that’s secured by placing a legal caveat on the property title of real property that you own.

You might recall that our clients had an existing first mortgage on their property – you can still apply for a caveat loan regardless of whether there is an existing home loan or second mortgage on the property!

The registered caveat on the Title Deed mark’s the lender’s interest, which means that no other transactions can occur until you’ve repaid the loan (and the caveat has been removed).

It’s important to note that due to differences in jurisdiction in Australia to abroad, no overseas properties can be used as security for a caveat loan.

Flexible loan amounts

Your loan amount comes down to how much equity is available in your property and your exit strategy.

Diverse Funding Solutions offer loans of up to 75% of the available equity in your real estate property.

It’s common for clients who own an investment property to offer them as security for caveat loans.

In the case study we explored above, our clients had more than sufficient equity in their property to cover their desired loan amount.

Affordable interest rates

With interest rates on home loans making waves in the news recently, you can feel at ease to proceed with a lending transaction through DFS, knowing that our caveat loan interest rates are some of the sharpest in the market, starting at 0.77% per month.

This is encouraging for those who used caveat loans to effect a debt consolidation on their existing business debt!

The final interest rate that will apply to you will be determined once your application finance has been fully assessed and, of course, may vary depending on your financial situation.

What else should business owners know before they apply for a caveat loan?

Don’t let getting money fast deter you from knowing all you need to before applying for a caveat loan, here is what else business owners should know about short-term caveat loans before applying.

Loan Terms

Being a short-term loan, caveat loans are usually offered between 1 and 36 months. If you need a finance solution that extends past this,

Property valuations

You might be wondering, ‘are valuations required’? To be able to approve your loan application, often, the lender will want to assess your property value, however, this may not always be done through a formal property valuation.

Caveat loans don’t usually require legal or financial advice

With caveat loans secured by a legal caveat, it’s important to access any professional advice your business needs before making decisions on caveat finance.

We offer fast caveat loans, but can’t offer legal advice.

No hidden fees

There are no sneaky fees lurking in our caveat loan contracts — we are finance brokers who are transparent and work with you, not against you, to help meet your finance needs.

Staring a caveat loan application

Just like our clients who had B&B dreams, your caveat loan application starts with a phone call.

Simply fill in your details to request a callback, or contact us directly on 1300 94 22 33 – with offices across Australia, we can step you throw the start of your caveat loan journey no matter where you are.

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