Uncomplicating Caveat Loan Terminology

By: Aaron Robbins0 comments

Business loans make up part of a complicated business universe, but Caveat Loan terms don’t need to have you feeling like ‘business owners are from Mars, and Caveat Loans are from Jupiter’.

If you’re one of the many small businesses growing the confidence to access business finance again after COVID’s upheaval to your world, then you might benefit from brushing up on some of the terminology you come across — it’s been a big couple of year’s after all.

At Diverse Funding Solutions, we like to keep things down to earth, which is why we want to pause and explain some of the Caveat Loan terminology you will come across when accessing a caveat loan for your small business.

What are Caveat Loans?

First and foremost, let’s go over what a Caveat Loan is.

Caveat Loans are a short term business loan that uses real estate property as security.

They’re available to business owners who also own property and are often referred to as Short Term Caveat Loans or Fast Caveat Loans, because they are both short term and fast to have approved!

Caveat loans work for a variety of different business purposes, including:

  • Improving or smoothing out cash flow.
  • Buying your next business premises, or franchise.
  • Affording a one-off cost such as hiring a new employee or a yearly tax bill.
  • Renovating or upgrading your shop.
  • Purchasing a bulk stock order or equipment.
  • Assisting in the preparation for a property sale.

Property developers are no stranger to caveat loans; they may be a wonderful solution to financing a commercial build, as the loan can be repaid in a short time frame once the building is sold.

Boosting cash flow is also another commonly used way that caveat loans help Australian businesses.

Caveat Loan Terminology explained

There are many key financial terms when it comes to business.

It’s unrealistic to presume you’ll remember each and every one, so read on as we step through and refresh you on some of the terminology that will give you the caveat lending confidence your small business deserves.

Legal Caveat

A legal caveat acts like a notice that’s recorded on the title deed of a real property.

Lodging a caveat on a title deed acts as a form of injunction, where no other transactions on your property, such as transferring your title deed or selling the home, can occur without first notifying the caveator (in this case, the lender).

Good to know: You can still apply for a caveat loan even if you have an existing mortgage, including a second mortgage.

A legal caveat sits behind any existing mortgage on the property, so as a lender, we don’t need to gain the permission of any lender for the bank loans that might already exist on your property.

This answers the question, “how are Caveat Loans secured”?

Equity

Equity, when it comes to properties (including your home), is the difference between what your house is worth and how much money is owed against it.

Effectively, equity refers to how much of your house you own.

The more you repay off your home loan, the more equity you build (provided your house doesn’t drop in value).

In a property market where house prices are increasing in value, your equity is effectively growing faster because you are reducing your debt by paying it off, while the value of your home increases.

Private Lenders

A private lender is either an individual, a group of people or a company who lends money to other individuals or businesses, but isn’t affiliated or tied to any particular bank.

Private lenders therefore, often have access to a multitude of different products, are unbiased and provide exceptional flexibility when it comes to assessing your caveat loan application.

Title Deed

A property’s Title Deed is the legal document that shows you own the property.

Another name for a Title Deed is a Certificate of Title.

With the digital age upon us, you can now access electronic certificates of title.

Lending Criteria

Whenever you apply for a loan, you must meet the lender’s ‘lending criteria’, which is exactly as it sounds; a set of criteria that you must meet in order for the lender to lend money to you.

Lending criteria is the fundamental difference between private lenders and other lenders such as banks and credit unions.

Our criteria as a private lender is far more flexible and much less stringent than traditional banks, which is why so many small businesses and self-employed people apply for a caveat loan [link to the self-employed investors guide] through us.

Australian Credit Licence (ACL)

Almost all companies who provide loans (which is referred to as a ‘credit’ activity) must have a licence to be able to do so — this is called the Australian Credit Licence.

Authorised Credit Representative (ACR)

If a lender doesn’t hold an Australian Credit Licence themselves, then they may be authorised to provide credit under someone who does, as an Authorized Credit Representative.

Lender’s Interest

When we refer to Lender’s Interest, we aren’t talking about interest that we as a lender charge, we’re referring to our legal interest in your property being registered on the title deed.

Private Funding

Private funding is how private lending companies are able to have the money to lend onto businesses who apply for loans.

Funding can come from extremely high wealth investors and individuals or from other companies.

Loan Term

Sometimes the phrase ‘loan terms’ refer to the conditions of the loan, however, a ‘loan term’ is the duration of the loan (how long you’ve taken the loan out for).

A caveat loan through Diverse Funding Solutions typically has a loan term of 12 months, however, this is able to be shortened or extended, depending on your unique situation and needs.

The term is what makes caveat loans a form of short term loan.

Security Property

The security property is the real estate property that is being used to secure the caveat loan.

It’s important to note that we cannot accept overseas properties as security properties due to differences in legal jurisdiction with other countries.

Exit Strategies

An exit strategy is how we ensure that caveat loans are able to be repaid.

It’s important for any lender to make sure that they don’t put a borrower in undue financial hardship by offering them a loan.

There are still lending policies to adhere to, even when lending privately, which is why we devise a clear method for you to pay the loan back in full.

Repayment Schedules

A repayment schedule is the outlined schedule of repayments that are to be made in order to pay out your caveat loan as described within the exit strategy.

Interest Rates

Property buyers are acutely aware of changes to interest rates, but the interest rate on business finance differs from lending for home loans or other loan types.

Lending for a business purpose with a caveat loan through DFS means you can access an interest rate as low as 0.77%pm.

How to start your short term caveat loan application

Deciding on a caveat loan can be an exciting step in your business. Here’s how to start the loan process:

  • Understand the required loan amount and make sure that you have sufficient equity for sufficient funding.

Remember that

you can access up to 75% of the equity that’s sitting in your property

. If you own your property with no debt attached, then you can effectively access up to 75% of your property value.

  • Obtain any legal or financial advice, if you feel it’s necessary before entering into any business loan, including caveat loans.
  • Rest assured that we won’t need to access your credit history, your credit file, revenue forecasts or even perform a formal property valuation, which is part of why our application process is hassle-free and why we can offer fast and easy approvals.

We don’t need you to complete any pre-approval application before you get to the loan approval stage, which means we can get you funds quickly.

Caveat loans settle faster than almost all other business loans in Australia.

If you’re ready to join one of the thousands of property owners who get a caveat loan to release equity, we’re ready to deliver excellent customer service throughout the entire application process.

Contact one of our offices, or get a quote today!

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