When it comes to short-term business financing, one of the trickiest tasks for entrepreneurs is finding the product that best suits their needs. Fundamental misconceptions are a common problem, and we are here to solve it. A cash injection can help a business capture an opportunity or overcome unexpected hurdles.
If you have equity in real estate, you will become eligible for a caveat loan. A caveat loan is secured funding in which real estate is used as collateral to raise funds. A caveat is lodged over the property title to secure the loan.
What is A Caveat Loan?
A caveat loan is a financial product secured by the borrower or their guarantor via real estate used as security. It gets lodged on the title of the property.
If you take out a business loan, you should offer your property as collateral to the lender. The lender registers interest over the property which remains until the debt is repaid.
Caveat loan interest rates are competitive and start from 1.5% per month. You can customize caveat loan repayments to your company’s cash flow. For example, you can choose between interest only payments or have all costs capitalised and have no payments for the term of the loan.
What Are The Typical Uses For Caveat Loans?
Caveat loans are a quick source of short-term funding that you can use for different business related purposes. Business owners often use this short-term option to manage cash flow. Here are some typical uses for conditional loans:
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Improving Cash Flow Funds
The best bridging loans or caveat loans can help address business cash flow challenges such as paying employees, meeting unexpected costs, or paying suppliers.
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Equipment Purchases
The borrowers often use caveat loans to purchase new equipment to increase operational efficiency or to expand a current business.
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Business Expansion
Businesses ready to expand typically seek caveat financing to support growth without impacting operating costs.
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Buying More Inventory
Purchasing inventory and receiving discounts for business opportunities is another common caveat loan use.
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Pay Off Unexpected Business Expenses
Unexpected expenses are common in business. 2nd mortgage loans or caveats can be a viable alternative to cover emergency costs.
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New Employee Hiring
Caveat loans facilitate new employees hiring and help cover initial salaries until new team members are established.
What Are The Advantages of Caveat Loans?
The best bridging loans, like caveat funding, have various advantages. Let’s look at some of these below.
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Superfast Approval
Caveat loans are superfast. It is a type of loan that can be financed on the same day from application to settlement.
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Minimal Documentation Required
Caveat loan applications are hassle-free, as the documentation usually required is minimal. Compared to mortgage applications, caveat loans require less paperwork and often do not require proof of income. Filling out the online application takes just a few minutes.
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Rapid Decision-Making And Flexibility
Caveat loans have a lot of flexibility because the lender is not a large corporation. Therefore, they are highly dynamic and can be excellent problem solvers and quick decision-makers.
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No Valuation Required
For caveat loans, valuations are often not required. It saves borrowers time and money.
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Easy Application Process
Lenders offer a simple loan application and approval process for the best bridging loans. Minimum documentation is necessary. Lenders typically do not require time-consuming property valuations. However, traditional lenders such as banks require more forms and documents, which slow down the process.
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Low Upfront Costs With Caveat Loan Lenders
Short-term 2nd mortgage loans include legal fees, so there are no large up front expenses.
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Flexible Repayment Options
You can adjust the caveat loan repayment schedules to suit business cash flow with lenders. You can pay interest monthly, or have all costs capitalised. Banks, on the other hand, may lack flexibility in repayment options.
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Lower Interest Rates Than Unsecured Loans
Caveat loans offer security to lenders and allow them to offer lower interest rates than unsecured loans.
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Higher Funding Amount
Australian property prices have risen significantly since COVID-19. Average property across Australia has increased by more than $100,000. Using the property as collateral for a caveat loan allows you to access the extra equity.
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Speed
Caveat loans are designed for speed, and borrowers often receive the money within 24-48 hours of application.
How Much Can You Borrow With A Caveat Loan?
It depends on the value of your property and how much equity you have in it. Equity is the amount of property you own. For example, if your property is worth $1 million and you owe a $400,000 loan, you have $600,000 in assets that you can use as collateral in securing a loan. When you take out a loan from a lender, you can typically borrow up to 75% of the value of your property (LVR = Loan to Value Ratio).
Summing It Up
Is a caveat loan appropriate for your company? Well, it depends on certain factors, such as whether your business owns real estate or land to use as collateral for the loan, the urgency of your business to borrow, and how to repay the loan on time. Consider these before deciding and then reap its outstanding advantages.