If the bank says NO, DFS can get you a YES!
Discover the basics of caveat loans, their advantages over conventional financing options, and how businesses can effectively utilise them to manage cash flow, seize growth opportunities, and navigate financial challenges effectively.
Caveat loans offer a solution for businesses looking for extremely fast access to capital by leveraging their real estate assets. Caveat loans use real estate property as security, by placing a legal caveat over the property, which allows businesses to secure funds quickly without having to jump through the hoops of traditional lenders.
Caveat loans are particularly useful for businesses facing urgent financial needs or opportunities that require immediate funding. Often, funds can be accessed the same day you enquire!
Caveat loans offer business owners a flexible and accessible financing solution tailored to meet immediate financial demands and facilitate growth.
Caveat loans are hugely different from traditional business loans, providing much more flexibility. Caveat loans are secured against real estate property owned by the borrower, through the use of a legal caveat. This represents the private lender’s interest in the property and means the property is unable to be sold until the caveat is lifted. This is a much faster way of registering the lender’s interest than a mortgage, and doesn’t impact any existing mortgages, meaning the settlement process is rapidly sped up. Traditional loans typically take weeks to approve finance because of their comprehensive credit checks and documentation requirements — which caveat loans do not require.
In terms of flexibility, caveat loans can provide more adaptable repayment terms and schedules, such as interest-only options or capitalising interest, compared to the stricter repayment schedules of traditional loans. The repayment schedule can be based on the specific cash flow requirements of the borrower, rather than being dictated by a traditional lender.
These distinct differences make caveat loans a flexible choice for business owners looking for fast access to capital without the red tape of conventional lending practices.
The eligibility criteria for caveat loans typically include:
Meeting these simple and basic criteria will ensure you’re well on the way to caveat loan approval!
The application process for business caveat loans typically involves the following steps:
While caveat loans can be used for basically any business purpose, they are commonly used for the following purposes.
Cash flow issues can pop up when your customers are paying you much less frequently than you’re having to pay money out for things like supplies and wages. Caveat loans can be used to cover short-term gaps in cash flow.
Grabbing hold of time-sensitive business opportunities, such as purchasing inventory at discounted rates, buying new equipment to enhance productivity or acquiring a competitor business.
Funding initiatives for business growth, such as opening new locations, expanding facilities, overhauling assets or launching marketing campaigns.
Consolidating high-interest debts into a single loan. Caveat loans are often used to deal with ATO debt.
Providing interim funding until longer-term financing becomes available or is secured.
Addressing unexpected expenses or emergencies, such as repairs to essential equipment or property, to ensure business continuity.
Supporting seasonal fluctuations in revenue and expenses, helping businesses maintain stability throughout the year.
Caveat loan interest rates and repayment terms are structured to provide flexibility and accessibility for businesses needing quick access to capital. Where a traditional loan’s repayment schedule will be based on the length of the loan and the interest rate, the repayment schedule of a caveat loan provides a lot more room to move and is decided between the lender and borrower according to the borrower’s needs.
Interest rates for caveat loans are typically higher than traditional bank loans due to their short-term nature. These rates are often expressed as monthly percentages rather than annual and repayment terms can vary widely. Borrowers may opt for interest-only payments, where they pay only the interest during the loan term and repay the principal at the end, or they may choose to capitalise the interest, adding it to the principal amount. This flexibility allows businesses to align their repayment schedules with their cash flow cycles, ensuring they can manage financial obligations effectively while leveraging their property assets to secure necessary funding.
Caveat loans, while offering quick access to funds, come with some considerations that should be noted.
Caveat loans require real estate property as security, which means that the borrower risks losing the property if they default on the loan. This is similar to how a mortgage works, so the risk of losing your property is essentially on par with that of your home loan.
These loans are often short-term, generally ranging from 6 to 12 months. Businesses should have a clear repayment strategy in place, including an exit strategy regarding how they will repay the loan principal and interest within the agreed-upon timeframe.
Placing a caveat on a property involves legal processes taken care of by the lender. If the borrower is uncertain of what this means for their situation, they should seek legal advice to understand the implications, rights, and responsibilities associated with caveat loans, including the process of placing and removing caveats on property titles.
By carefully assessing these risks and considerations, businesses can manage potential challenges associated with caveat loans and make informed decisions to support their financial health and growth.
To learn more about caveat loans, please get in touch with us.
A caveat loan is a type of short-term business loan secured against real estate property owned by the borrower. A legal caveat is placed on the property’s title deed, preventing its sale or refinancing until the loan is repaid. This allows businesses to quickly access funds without extensive paperwork or credit checks.
Caveat loans offer several benefits, including rapid access to cash (often the same day), minimal documentation requirements, no credit checks, higher borrowing limits based on property equity, and flexible repayment options tailored to suit the business’s cash flow needs.
To be eligible for a caveat loan, you must own real estate property with sufficient equity to secure the loan. The funds must be intended for business purposes, such as managing cash flow, expansion, equipment purchase, or investment. Basic documentation proving property ownership and identification is also required.
Caveat loans are known for their swift approval and funding process. Businesses can often access funds on the same day as their initial enquiry, making them ideal for urgent financial needs or time-sensitive business opportunities.
Caveat loans can be used for various business purposes, including managing cash flow, seizing growth opportunities, funding business expansion, consolidating high-interest debts, providing bridging finance, addressing emergency expenses, and supporting seasonal operations.
While caveat loans offer quick access to funds, they come with risks such as using property as security, which means the borrower risks losing the property if they default. These loans are typically short-term (6 to 12 months), so businesses need a clear repayment and exit strategy. Additionally, legal processes are involved in placing and removing caveats on property titles, so seeking legal advice is recommended.
