How to Tell if a Caveat Loan is Right for You

By: Aaron Robbins0 comments

A caveat loan is fast, flexible finance that suits many Australian business owners, but knowing if it’s the right option for you can be confusing.

At Diverse Funding Solutions, we want to help make caveat lending as easy as possible to understand, which is why we’re sharing our tips on how to know if a caveat loan is the right option for your financing needs.

If you’re a business owner who also holds real estate property, then read on to find out whether you have a hidden finance opportunity hiding in your property’s equity.

What are caveat loans?

Before jumping into the intricacies of caveat loans, let us bring you up to speed on what short term caveat loans are and how they work.

Caveat loans are a short term business loan that are designed to effectively release equity within a security property.

You may see caveat loans referred to as short term caveat loans or fast caveat loans, because they are both!

Caveat loans settle faster than most other loans in Australia — which is why they put the ‘fast’ in ‘fast finance’.

What can a caveat loan be used for?

Unlike some traditional bank loans which require you to only use equity in your home to further improve the property itself, caveat loans allow you to use the equity in your home for a range of different business purposes.

If you have sufficient equity, then you can have sufficient funding to:

  • Repay a large, one-off bill such as a tax debt.
  • Acquire equipment for your business.
  • Renovate your shop or workspace.
  • Access the funds as a deposit for a new premises.
  • Immediately improve your business cash flow or inject working capital straight into your business.

Who short term caveat loans suit

Like most loan products, caveat loans are not a ‘one size fits all’ solution — however, the flexibility that Diverse Funding Solutions offers means that most business owners find caveat loans to be a terrific finance option.

Keep reading to find out if your situation suits a caveat loan.

You must own a business and a property

Perhaps one of the best starting points to determine whether caveat lending is appropriate for you is to know that caveat loans are a form of business loan, which means that you must own a business.

Due to being secured by real property, you must also own a real estate property.

Reassuringly, the security property doesn’t have to be in the business’ name, however it must be in Australia; we cannot accept overseas properties as security.

You must have equity in your property

A caveat loan uses the equity you have in your property to help secure the loan, which is why you need to have equity in order to access a caveat loan.

For property owners, it’s no secret that their current property valuation would most likely be very h2, thanks to the property market buoyancy.

Of course, equity is the difference between what your property is worth and how much debt is owed against it, which is why h2 markets like those we’re experiencing now can be a great opportunity to unlock your property’s equity.

You can access a caveat loan even if you have an existing mortgage on your property!

Suitable for those with bad credit

Many business owners are relieved to learn that our lending criteria doesn’t include a credit check.

Our application process means that we set out exit strategies and repayment schedules, rather than relying on your credit history or your credit file.

Credit checks aren’t necessary for private lenders like us at Diverse Funding Solutions, which is a fundamental difference between private lending and accessing business finance through traditional lenders such as banks.

You must be able to repay the loan

A short term caveat loan is just that; short term.

Our loan term is typically around 12 months (with the ability to extend out further should it be required), which means that when we assess your caveat loan application, we look to make sure that there is a way you can repay the loan.

An exit strategy is what we use to determine how the loan is to be repaid, and is why we don’t need to look at extended revenue forecasts or rely on your credit history during the loan process.

Examples of viable exit strategies are:

  • A property sale — for example, you’re using the equity in your property to gain funds quickly to purchase another business premises, but you’re waiting on the sale of an investment property or your existing business to go through.
  • Expecting a large lump sum payment — If you’re one of the many businesses that have been put out by the recent flooding throughout Queensland and New South Wales, then you may be expecting an insurance payout.

The lump sum of funds would be a viable exit strategy to repay a caveat loan, particularly if you’re using a caveat loan to recover after flooding.

  • Recently signed contracts — If you’ve recently signed a large contract, but the revenue isn’t expected to hit your account for another three months, then accessing a caveat loan can give you that initial working capital you need, and we can use the expected revenue as the strategy to repay the loan.

You need funds in a hurry

To make the most of business opportunities, you often need to act quickly, which is why caveat loans are so fitting.

Diverse Funding Solutions offer fast and easy approvals, with approval in as little as 48 hours.

Our hassle-free application process means that you don’t need to take time away from your business to trudge through an over-complicated pre-approval application, or find every mortgage statement for the past year.

When you get a caveat loan through DFS, you can expect an incredibly straightforward application, with fast turnaround times and excellent customer service.

Caveat loans explained further

If a caveat loan is looking like the right option for you, but you need a little more information, we’ve covered off on some more of the important details you need to know.

Are fast caveat loans the same as second mortgages?

Caveat loans work in a similar way to second mortgages, however, there are a few key differences between the two.

You can read more about the difference between a caveat loan and a second mortgage here.

Do I need legal or financial advice before getting a caveat loan?

Business loans, even if only a short term loan, do impact your financial position.

If you feel that you need to access professional advice prior to entering into any loan agreement, then we absolutely advocate for you to.

How are caveat loans secured?

Caveat loans are secured by placing a legal caveat on the title deed of your property. A caveat simply registers the lender’s interest in your property.

Other lenders (such as the home loan lender of your registered mortgage) don’t need to be notified before we can lodge a caveat on your property, as the caveat sits behind any mortgage on the property.

What interest rate do I pay on a caveat loan?

Interest rates are a hot topic at the moment; we’re proud to offer some of the most competitive interest rates in the caveat lending market!

Not only do our caveat loan interest rates start at 0.77%pm, but we also provide a discount for new clients — simply fill in your details to get an express quote.

What fees apply to a caveat loan?

When you apply for a caveat with DFS, there are no hidden fees — instead, we opt for full transparency around any and all costs in our loan terms.

What is the maximum loan amount on a caveat loan?

You can access up to 75% of the equity in your property through a caveat loan!

This means that if you have no debt on your property, you could effectively access up to 75% of your property value!

Is Private Lending safe?

Private lenders are not the cowboys of the credit market; you can rest assured that at Diverse Funding Solutions, our director is an Authorised Credit Representative of an Australian Credit Licence holder.

If you’re ready to apply, or want to learn more about how you can almost immediately improve your business’s cash flow with a caveat loan, then contact our team today.

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