Business Finance for Startups: How Caveat Loans Can Help

By: Aaron Robbins0 comments

Starting up a business often means being loaded with thousands of ideas, but minimal funds; a caveat loan can be the reliable and flexible start you need to get your business off the ground.

There are many steps when it comes to starting a business, each with its own set of decisions to be made.

Sometimes, even with all your business ducks in a row, acquiring finance can be a real struggle.

At Diverse Funding Solutions, we work with many successful Australian businesses, big and small, which is why we’ve created this brief guide on how a short term caveat loan can make your business dreams a reality.

Why it’s so hard to get finance as a start-up business

Business finance can be incredibly difficult to obtain, especially if you’re an Australian small business in its start-up phase.

Being a start-up often means that this is your first business venture, so proving to banks and other business lenders about your profitability and ability to cover the loan repayments can seem almost impossible.

One of the other barriers can be that lenders need a form of security to lend you money for a business purpose, but will only accept business assets — none of which you can acquire until you have the finance to get you there!

That’s where private funding can be a start-up business’s saving grace.

How Diverse Funding Solutions can help startups

At DFS, we are private lenders who operate under an Australian Credit Licence and can provide you with a business loan, even if you don’t have any business assets.

A caveat loan is one of the many loan types that we specialise in, that provides new business owners with the opportunity to use a home that they already own (even if there’s money still owing on it) to access the funds they need to launch.

Unlike home loans, caveat loans have a loan term of only a year or two, which means your financial responsibility doesn’t drag out longer than it needs to.

Important: Depending on what business structure you choose for your new business, you may need to seek legal or financial advice before taking out a loan.

This would be particularly important if you chose a Trust, Partnership or Company structure.

What are short term caveat loans?

Short term caveat loans are a form of business loan that is available to business owners who also own property.

They’re considered short term loans as the loan term is typically around 12 months.

A caveat loan looks to release equity tied up in real estate property, with flexibility on what you can use the funds for.

Caveat loans work by the lender placing a legal caveat on the title of your property, therefore registering the lender’s interest.

Unlike a second mortgage, the caveat loan lender doesn’t have the necessary legal rights to sell your property in the event that you default. Instead, we look to set an affordable repayment schedule and exit strategy so that we can provide your business with sufficient funding.

The benefits of accessing a private lender for your caveat loan

Private lenders provide many benefits to their business borrowers when they’re looking to lend for business purposes.

No credit check

As we mentioned before, our repayment schedules and exit strategies are what help us determine the appropriateness to lend money for a caveat loan.

We don’t rely on your credit history, and we understand that, particularly when you’re first starting up a business, your credit file may not reflect the future success of your business, or your ability to repay your loan.

This makes accessing caveat loans through private lending attractive to those prospective business owners who may have bad credit.

It is also how we offer such flexible lending criteria, not bound by the same rigidity and inflexibility that a typical Authorised credit representative may be.

Fast Settlement

Fast Caveat Loans settle faster than almost all other business loans in Australia!

We can offer fast and easy approvals due to our incredibly simple loan process, which other lenders simply can’t offer.

When you apply for a caveat loan through DFS, our application process doesn’t include the complicated red tape and stress that other bank loans or business loans do.

Your caveat loan application is hassle-free and can be approved within 48 hours.

With DFS, you won’t be asked to satisfy a pre-approval application process, submit a formal property valuation, or (perhaps very reassuringly) be asked to provide revenue forecasts for your business.

This means we can get you funds quickly and get your small business a loan approval, sooner.

Save Interest

You may be surprised to learn that we have some of the most competitive caveat lending interest rates on the market, at Diverse Funding Solutions.

Our caveat loans come with an interest rate starting at 0.77%pm, meaning that you may save interest compared to accessing business finance through other lenders.

The ins and outs of a short term caveat loan

How are fast caveat loans secured?

Caveat loans are secured by placing a legal caveat on the title deed of a real estate property that you own in Australia.

Unfortunately, due to differences in legal jurisdiction, we cannot accept overseas properties as security.

Are there any hidden fees with caveat loans?

Caveat loans come with no hidden fees or nasty surprises; when you get a caveat loan through DFS, you can expect full transparency and excellent customer service.

Is there a difference between a second mortgage and a caveat loan?

The fundamental difference between a second mortgage and a caveat loan is how the two loans are secured.

Second mortgages also use property as security against the loan, however, the mortgage lender has rights to act on the property should you default on your loan.

Second mortgages and caveat loans do have a lot in common when it comes to both being a short term loan, with similar loan terms, relying on sufficient equity in a property to fund a range of needs.

What can caveat loans be used for?

On top of helping you to unlock the funds you need to get your business off the ground, caveat loans are often used by property owners in business to:

  • Pay large, one-off bills such as an ATO payment.
  • Fund business renovations or acquire another franchise.
  • Bridge the gap between a property purchase and property sale of their existing premises. (Some property buyers use fast finance as a way to gain a competitive advantage in such a tough property market).
  • Improve their cash flow by instantly boosting their working capital.

Property developers also frequently use caveat lending to fund their commercial property builds.

What loan amount can I apply for with a caveat loan?

How much you can borrow through a caveat loan depends on the equity that you have in your security property.

At DFS, we offer caveat loans for up to 75% of the equity value in your security property!

This means that your caveat loan amount could be up to 75% of your property value if you own it outright!

Can I access a caveat loan with an existing mortgage?

Even if there is an existing mortgage or home loan on your property, you can still access a caveat loan.

The legal caveat is on the title deed of your property, so it sits behind any mortgage, and therefore we don’t need to gain permission from your mortgage lender to apply the caveat.

How to apply for a caveat loan

The Australian Government (and us here at DFS) want to set you on your path to business success, check out the Government’s handy guide to starting a business.

Meanwhile, if you’re ready to discover how Diverse Funding Solutions can help your business lift off the ground, simply fill in your details so that our experienced team can get in touch with you.

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