How to Handle the Rising Cost Of Business With a Caveat Loan

By: Aaron Robbins0 comments

As one of the most flexible lending solutions available for Aussie businesses, caveat loans are well equipped to help you handle the rising cost of business.

With economic conditions rapidly changing and rising costs of living, goods, services, salaries and wages, businesses all over the country are feeling the pressure to keep up.

If you’re searching for an innovative way to navigate the ever-increasing cost of business, keep reading as we introduce how you can help your business handle the rising cost environment, including using a caveat loan.

What’s caused so much pressure on the cost of running a business?

Over the past few years, there has been somewhat of a perfect storm to create the environment in which Aussie businesses find themselves.

Currently, Australia’s inflation rate is at an all-time high. In an effort to bring inflation back to target, the Reserve Bank of Australia (RBA) has recently increased the cash rate target (current interest rate) every month for four consecutive months.

When additional pressure is put on households to afford their monthly repayments on home loans, and the cost of groceries, petrol and other services increases, there is a flow-on effect on consumer behaviour, which businesses bear the brunt of.

The COVID-19 pandemic, the war in Ukraine, and a computer chip shortage have all contributed to a mass supply chain shortage across the globe.

Meanwhile, domestically, Australia currently has the second-most severe shortage of skills and labour in the world!

The above factors combine to create a perfect pressure storm for keeping businesses’ doors open and profits high.

Managing the rising cost environment

If your business sells products, then keeping ahead of rising costs can equate to needing to increase your own prices.

Look at your pricing strategy

It can be challenging to know how to effect a product cost raise, particularly for smaller businesses that may not have a dedicated pricing analysis team.

Some common pricing methods for small businesses are:

Dynamic Pricing

Dynamic pricing involves setting your item price based on market trends. This pricing strategy is helpful for industries that operate with seasonal demand and supply.

Bundle Pricing

You’re probably aware of bundle pricing, where a business sells products together rather than individually. Bundle pricing can help to shift more inventory faster, but for it to work effectively, the losses on higher-value items in the bundle need to be lower than the profit on low-value items.

Market penetration pricing

For start-ups entering the business world or businesses new to the market, one strategy is to set the initial price bar relatively low. Once their customer base increases, they can look to incrementally increase prices.

Be informed and update your business plan

Reviewing your business amid turbulent operating conditions and economic changes enables you to make informed decisions and modify your business plan as required.

If you’re stuck on where to start, consider:

  • Reviewing prices to ensure that your costs are covered and phasing any increases appropriately
  • Understanding your cash flow and where existing pressure points are (and could be in the future)
  • Reviewing labour, staffing levels, skills and salaries
  • Understand your existing costs, including those from your suppliers
  • Look at your competitors and existing network to gauge how they are managing and know how to differentiate yourself while picking up ideas for management strategies

How a short-term caveat loan can help handle cost rises

Property owners who also own a business find caveat loans extremely flexible, as they can provide up to 75% of the equity sitting in a security property for a short-term loan!

The range of business purposes that caveat loans can provide funds for is vast, so accessing a caveat loan could be an ideal way to help handle cost rises in your business.

With caveat loans, you are paid funds quickly, in a matter of days — sometimes as soon as 48 hours!

Fast funding makes caveat loans a great way to access funds to help your business navigate rising costs.

A short-term loan means you won’t be stuck repaying the loan for an excessive amount of time.

Instead, when you submit a caveat loan application, lenders like us at Diverse Funding Solutions look for an appropriate exit strategy and set out repayment schedules.

Your loan term can range anywhere from one month to a year or two if necessary.

Provided you have a real estate property with sufficient equity, you could be able to apply for a caveat loan to give your business the cash flow boost it needs.

Caveat loans explained further

Interested to learn more about how caveat loans work?

Keep reading as we go over the finer details of caveat lending.

Short-term caveat loans rely on exit strategies

As we mentioned earlier, short-term caveat loans are established with a suitable exit strategy to repay the loan.

For example, you may have just put on another staff member and need assistance to cover the onboarding costs until they are up to speed and generating revenue for the business. The expected profit from their skills added to your team could be an exit strategy.

The same could be said for the expected sale proceeds of a large amount of inventory or business assets.

Your business could even be looking to downsize; the sale proceeds from the departing office or industrial property could be a suitable exit strategy.

Fast caveat loans are, well, fast!

Unlike bank loans that can take weeks and months to be funded, caveat loans are typically offered by private lenders (such as us here at DFS), which means we don’t follow the same convoluted process as other lenders.

Our caveat loan application requires minimal documentation

Not only can we fund your caveat loan within a matter of days, but our application process is also hassle-free!

We don’t require a mountain of paperwork to get your loan application processed; instead, we look at your most recent mortgage statement, council rates’ notice and your identification.

In some instances, we’ll need to perform a property valuation, but for most caveat loans, no valuations are required.

How are caveat loans secured?

As we mentioned earlier, caveat loans effectively allow you to release equity in an existing property you own.

The caveat lender registers their lender’s interest on the property title via a legal caveat (hence the name)!

Both commercial and residential property can be used to secure a caveat loan, including an investment property.

Due to differences in legislation abroad, overseas properties can’t be used to secure caveat loans.

No credit checks

Most times, when business owners who’ve had a rough couple of years seek out a lending transaction, their main concern is the impact of a credit check.

Thankfully, the benefit of private lending is that we don’t rely solely on your credit file to assess your application. 

The private lenders we access offer far more flexible lending criteria, which is the fundamental difference between private lenders and traditional lenders and financial institutions.

Can I get a caveat loan with an existing mortgage?

It’s unreasonable to expect that every property owner will own their property outright.

The good news is that if you have an existing first mortgage or even second mortgage on the property, provided there is enough equity hiding in the property value, you can apply for a caveat loan!

Do I need legal or financial advice?

Accessing a caveat loan via private lending doesn’t come with any requirement to access financial or legal advice.

If you feel that your business needs to access professional advice before taking out a short-term business loan of any description, it’s prudent to do so.

How can my business get a caveat loan?

As an Authorised Credit Representative of an Australian Credit Licence, Diverse Funding Solutions is a credible and experienced provider of caveat loans in Australia.

Our caveat loans come with some of the most competitive interest rates in the private lending market, starting at 0.77%pm.

To access a lender who’ll get back to you in a timely manner and work towards loan terms designed to suit your personal circumstances, contact Diverse Funding Solutions, or apply online.

 

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