Weighing Up if a Caveat Loan Is the Right Move for Your Business

By: Aaron Robbins0 comments

When your business needs funds quickly, weighing up your finance options can feel like a heavy decision; let us lighten the load by explaining what you need to know about Caveat Loans.

Whether it’s to achieve improved cash flow, get a debt consolidation underway, a working capital boost, buy your next franchise or even prepare your business for sale, a caveat loan is an uncomplicated, fast finance option.

If you own property and also run a business, read on as we delve into the details of caveat loans.

Caveat loans are backed by property you own

One of the initial considerations when weighing up a caveat loan is to understand if you’re eligible to apply for one to begin with.

Caveat loans are a business loan that’s secured by Australian real property.

This means that if you own real estate property and also own a business, you’re likely to be eligible to apply.

The loan is secured by effectively releasing the equity you have within your property, meaning that if you have sufficient equity, then you could have a sufficient caveat loan amount!

With the hot residential property market in Australia at the moment, many clients have seen their property value soar.

What this means for business owners is that they have the opportunity to back a caveat loan, which they may not have previously.

Good to note: Overseas properties don’t qualify as a security property for caveat loans, but your investment property might!

A short term caveat loan can fund a range of business purposes

Not every business operates the same; therefore, not every finance need is going to be the same.

Caveat loans don’t come with restrictions as to where you can utilise the funds, provided it’s for a business purpose.

Many clients of ours have used a short term caveat loan to:

  • Renovate their office, workspace or shop front.
  • Prepare a business for sale.
  • Purchase equipment or business assets before the end of financial year.
  • Inject working capital back into their business when they need it the most.
  • Smooth out lumpy cash flow.
  • Completing a debt consolidation.
  • Buy their next franchise or fund their next business idea.

Caveat lending is completely flexible — there just needs to be a suitable exit strategy on how you’ll repay the loan.

Finding an appropriate exit strategy

The way that we assess how the loan is to be repaid is through devising an appropriate exit strategy.

In a recent case study [link to case study] that we shared, clients had made plans to refinance with a major lender in 24 months, which was a viable strategy for repaying the loan.

The most common exit strategies include:

  • Using the sale proceeds from a property sale, equipment sale or stock sell-off
  • Incoming insurance compensation monies
  • Paying out the caveat loan with other expected lump sums
  • Refinancing with a major lender or bank in the future

Once an exit strategy has been devised, repayment schedules are then determined by the caveat loan lender.

Caveat loans are short term business loans

Aptly nicknamed ‘short term caveat loans’, a caveat loan is a short term loan solution, typically offered across loan terms between 1 month and 36 months.

Being the flexible lender that we are, we are happy to work with businesses on terms relevant to their specific requirements, and can extend this if required.

Some things to bear in mind about caveat loans

Firstly, when the legal caveat is placed on your property title, it prevents other transactions from taking place on that property.

This means that no sale or change of ownership can take place while the caveat is active (the caveat is removed once the loan has been fully repaid).

Secondly, fast caveat loans are only able to be secured by real property.

There are some subtle differences between real estate property and real property, mostly to do with the usage and ownership.

Lastly, caveat loans may still affect your balance sheet, as they will be an added liability for your business (even if only for a short period of time).

The impact of lending money on businesses will vary depending on your financial situation, so be sure to run the numbers before hitting ‘apply’.

The benefits of short term caveat loans

Caveat loans come with many benefits, particularly when compared to bank loans or other traditional business loans.

1 . Fast approvals

Caveat loans are designed to be approved and funded in as little as a few days, hence often being referred to as ‘fast caveat loans’.

At DFS, we strive to have our caveat loans funded within 48 hours!

It is not uncommon for us to be able to send applicants a letter of offer on the same day they app

If there are valuations required, we can usually have this done within days of when the lender receives your application.

2 . No credit checks

Bad credit can happen to the best of us; your personal circumstances don’t need to get in the way of having your caveat loan application approved.

Setting our own lending criteria, without the need to rely on your credit file is one of the plus sides of being one of Australia’s leading private lenders.

Plenty of business owners suffer bad credit from time to time.

Disregarding your credit score is what sets caveat loans apart from other loans.

3 . Competitive interest rates

It’s easier to enter into a lending transaction when you’re confident you’re receiving some of the most competitive interest rates on the market — Caveat Loan interest rates start at 0.77%pm at Diverse Funding Solutions!

Request an express quote to see what your interest rate may be!

4 . Minimal documentation required

When you apply for a caveat loan, we ask for minimal documentation, which is part of the reason why we can provide approval letters in such a timely manner.

The paperwork required by other lenders can feel like you’re providing endless amounts of tax returns, revenue forecasts, mortgage statements, cash flow statements and more.

The hassle-free application journey is a fundamental difference between private lending and traditional lending.

5 . You can apply even if you have money owing on your mortgage

Whether it’s an investment property with a first mortgage attached, or your residential property, with a home loan or second mortgage, the legal caveat to secure your loan is placed behind first and second mortgages on your title deed.

This means that our lender’s interest can still be registered on your property, regardless of what other mortgage exists.

How the caveat loan application process works

Step 1 – Access any legal or financial advice, if you need to

Before proceeding with any major business decision, it is prudent to access any professional advice you need first.

Our credit licence doesn’t extend to being able to offer legal advice or financial advice, only great business finance solutions.

Step 2 – Calculate your equity

To know whether there’s enough money tied up in your property to back a caveat loan, take the property value and deduct the balance of any money owing against it (such as home loans or second mortgages).

At DFS, your caveat loan amount can be up to 75% of your available equity!

Step 3 – Think of how you’ll repay the loan

Caveat loans require a strategy on how they’ll be repaid, so consider what strategy you’ll take.

Step 4 – Apply for a caveat loan with Diverse Funding Solutions

We are one of Australia’s largest providers of caveat loans and offer a hassle-free loan application process, no hidden fees, an attractive interest rate and exceptional customer service.

If your business needs money fast, then contact Diverse Funding Solutions — simply fill in your details, or you can request a callback.

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