Caveat loans are a popular short term finance option for Australian businesses.
Many Australian businesses and business owners are taking out caveat loans at record low interest rates.
Read on to find out everything you need to know about caveat loans, including answers to FAQs.
What is a Caveat Loan?
Caveat is a Latin word that’s used in Australian property law.
It is a lender’s registered interest in a property that is being used as security for a loan.
Caveats are registered by the lender at the relevant government department in each Australian State or Territory.
For example, in New South Wales they are registered at NSW Land Registry Services.
In Melbourne, they are registered at Land Victoria.
In Brisbane they are registered at Titles Queensland.
How Do Short Term Caveat Loans Work?
When you take out a caveat loan, you need to provide property as security to the lender.
The caveat lowers the lender’s risk.
The lender registers their interest via a caveat.
The caveat prevents you from selling the property until it is removed.
Your caveat is removed when you have paid out your loan.
What is the Difference Between a Caveat and a Mortgage?
A caveat is similar to a mortgage.
Both use property as security.
However, unlike a mortgage, a caveat doesn’t allow a lender to repossess your property if you don’t make your repayments.
A mortgage on the other hand does give a lender the right to repossess your property if you don’t make your repayments.
Having a caveat loan is like having a second mortgage in most other aspects.
What Can Caveat Loans Be Used For?
Caveat loans can be used for a wide range of purposes, including:
- Cash flow.
- Property development.
- Construction.
- Renovations.
- Buying land.
- Buying a business.
- Paying tax.
- Buying more stock to sell.
- Debt consolidation (refinancing multiple debts into a single caveat loan at a lower interest rate).
If you have an Australian Business Number (ABN) and some property you can use as security, you can qualify for a caveat loan.
It’s a business loan.
What Types of Properties Can Be Used for a Caveat Loan?
All type of properties in Australia can be suitable as security for caveat loans, including:
- Residential property.
- Commercial property.
- Industrial property.
- Undeveloped land.
- Farms.
Who Funds Caveat Loans Australia Wide?
Caveat loans have traditionally been provided by mainstream lenders.
However, they are now also provided by private lenders, a fast-growing sector of the Australian lending market.
We are a private lending specialists at DFS with access to a pool of over 200 lenders.
The Pros of Caveat Loans
Caveat loans have both pros and cons. Let’s look at the pros first.
- Cash in hand at Lightning Speed.
Private lender caveat loans are super-fast.
From initial enquiry to cash in your hand, a caveat loan can be finalised within the same day.
- Quick Decisions and Flexibility.
There is a lot of flexibility with caveat loans as the lender is not a large corporation.
Therefore, it allows them to be very dynamic, great problem solvers and quick decision makers.
- No valuation required.
Often a valuation will not be required for a caveat loan.
This saves the borrower time and money.
Sometimes if a valuation is required, it can even be done after the loan has settled.
- No credit check with private lenders.
Private lenders usually won’t do credit checks on you for a caveat loan.
The caveat is all the security they need.
- Simple application process with private lenders.
Private lenders have a simple caveat loan application and approval process.
Minimal documents are needed.
Private lenders typically don’t require a time-consuming property valuation to be done.
However, traditional lenders like banks typically require more forms and documents, which slows the process down.
Always use a private lender to get fast, hassle-free funds.
- Lower interest rates than non-secured loans.
Caveat loans give lenders security, so they can offer lower rates than you can get with unsecured loans.
- Flexible repayment options with private lenders.
Caveat loan repayment plans can be tailored to suit your business cash flow with private lenders.
Interest can be paid monthly, capitalised, or a combination of both.
Banks on the other hand are likely to be less flexible with their repayment options.
- You can borrow up to 100% of the property’s value with private lenders.
Australian property prices have increased significantly since COVID-19.
The average property across Australia has increased in value by more than $100,000.
This means you will have increased borrowing power when you use property as security for your caveat loan.
- Small upfront costs with private lenders.
Any legal costs can be included in your short term caveat loan, so you will not be out of pocket at all.
The Cons of Caveat Loans
The major cons of caveat loans relate to those provided by banks rather than private lenders.
- A time-consuming application process with banks (but not with private lenders).
Unlike private lenders, banks usually require you to fill out more paperwork.
They will also check your credit history and do a property valuation, which adds to the approval time.
- Strict bank lending criteria for approval
Banks usually have much stricter lending criteria than private lenders.
This can lead to you missing out on lucrative opportunities where you need a quick approval.
I Need a Fast Caveat Loan, How Long Does it Take?
Caveat loans can be settled with private lenders in as little as 12 hours due to the high level of security they provide and the flexibility of the private lending market.
However, it will usually take much longer if you get a caveat loan with a bank.
What Documents Do I Need for a Caveat Loan?
All you need to supply for a caveat loan from a private lender are:
- Council rates notice for your property
- First mortgage statement
- Your driver’s licence.
Can I Get a Caveat Loan with No Valuation?
Yes, Diverse Funding can secure you a caveat loan without a valuation.
Banks on the other hand will usually require a property valuation, which inevitably delays approval.
Are Bad Credit Caveat Loans Possible?
Yes, if you apply with a private lender.
That’s because private lenders usually won’t check your credit score like banks will.
If you have a bad credit history, you can still get a caveat loan.
Can I Apply for a Caveat Loan Online?
Yes.
At DFS, we have a simple online application process for caveat loans with our range of private lenders.
We will match you with a suitable lender.
Other Caveat Loan FAQs
How Long Are Caveat Loan Terms?
Caveat loan terms typically range from a few days up to 3 years.
Extensions are also possible.
When you go with a private lender, you can negotiate the loan term that suits you.
What Are Caveat Loan Interest Rates?
Caveat loan interests are currently at historic lows.
They range from about 0.77% per month to 3% per month.
What Are Caveat Loan Repayments?
Caveat loan repayments can be tailored to suit your business cash flow.
For example, you can choose to have regular payments, periodic lump sum payments, or a combination of both.
How Much Can You Borrow with a Caveat Loan?
This depends on the value of your property and how much equity you have in it.
Equity is the amount of the property you own.
For example, if you have a property worth $1 million and you own it outright, you have $1 million.
If your property is worth $1 million and you owe $400,000, you have $600,000 equity.
If you borrow with a private lender, you can usually borrow up to 80% of your property’s value (LVR = Loan to Value Ratio).
Can I Have More Than One Caveat on a Property?
No, a property can only be used as security against one loan.
What Happens to the Caveat at the End of the Loan?
The caveat is removed by the lender once you fully repay the loan.
Case Study – Caveat Loan in Sydney
Our client’s finance problem:
One of our Diverse Funding clients had an investment property in an idyllic Noosa location that he wanted to flip.
The location was brilliant, but the property needed some renovation work to maximise its potential.
The owner approached us because he needed a caveat loan to lock in a builder to get the work done quickly and sell during the summer.
Our private lending solution:
We approved and settled his caveat loan within 48 hours with the property being the caveat security.
He was able to get the work done and capitalise on the booming real estate market to make a six-figure profit flipping the property.
Case Study – Caveat Loan in Melbourne
Our client’s finance problem:
A property developer client in Melbourne was building a townhouse development project.
All up, he was building 20 townhouses.
Unfortunately, the price of building materials has skyrocketed during the real estate and construction boom of the past two years.
When you’re a developer of multiple dwellings, increases in building costs quickly multiply.
He needed additional short-term finance to complete his development.
He was $650,000 short.
Our private lending solution:
The client contacted us to help with the shortfall in his construction finance.
We arranged a very competitive and well-priced caveat loan with one of our private lenders.
The developer is on track to complete his townhouse project and pre-sales will ensure that he can fully repay the loan within three years.
Case Study – Caveat Loan in Brisbane
Our client’s finance problem:
A couple in Brisbane needed finance to expand their business, but they didn’t satisfy their bank’s strict lending criteria.
It was a chicken and egg scenario.
They know they could quickly double their turnover and profits if they could expand their operation and sell more stock.
Our private lending solution:
We were able to provide the couple with a caveat loan using the equity in their residential property as security.
We also structured a repayment plan that suited their business cash flow.
They are now enjoying increased turnover and business profits, rather than stagnating like they were due to limited capacity.
Case Study – Caveat Loan in Adelaide
Our client’s finance problem:
An entrepreneurial client in Adelaide wanted to use the equity he had in a property to buy a commercial piece of real estate – premises he could lease and be positively geared.
Fast caveat loans can give you the speed sometimes required capitalise on lucrative opportunities before your competitors.
He couldn’t afford to wait weeks jumping through the hoops and waiting for a bank pre-approval finance.
Furthermore, the spike in lending applications during the current Australian real estate boom has led to even slower bank loan application processing times than usual.
He heard about the fast approval times available in the private lending market, so he turned to us for help.
Our private lending solution:
We were able to get him the cash he required via a caveat loan within 24 hours.
He was then able to go to the market and negotiate with confidence.
He secured a great deal on the commercial premises he needed and as it’s positively geared, he’s receiving profitable income from day one.
