Running a business is not easy, especially if your start-up is still in its initial stages. You might come across situations where you will need access to funds and timely solutions in order to keep your business alive.
There are several ways to gain financing for your business. Long-term, secured business loans are one of the most common ways to fund your start-up. However, the popularity of caveat business loans is also on the rise in Australia.
A short-term financing option, caveat loans are used mostly when a business requires urgent commercial funding. If you are a small business or have just started operations, getting a secured business loan can be tough. Most lenders require proof of revenue and have strict eligibility criteria. If you are unable to qualify for a business loan, you can apply for a caveat loan!
This blog will serve as the complete guide to caveat lending. It will provide all the necessary information you need before you apply for caveat loans Sydney, Melbourne or any other city in Australia.
What Are Caveat Business Loans?
Have you heard of payday loans? They are short-term cash loans for individuals who need immediate access to funds or cannot qualify for long-term personal loans. Caveat loans are like payday loans but for a business.
In other words, a caveat business loan is a short term financing option for businesses that require immediate access to funds. The turnaround time for a caveat loan is usually between 1 to 12 months. The interest rates on a caveat loan are higher than on regular business loans.
Caveat loans do not have strict eligibility criteria. This is because they require business owners to use an asset as collateral to provide security to the lender. The most widely used asset for securing a caveat loan is a piece of property, whether it’s commercial, residential or even investment property. The amount you borrow in the caveat loan will be based on the property’s equity that you are using as collateral.
Who Can Take a Caveat Business Loan?
Small business owners who do not meet the criteria to qualify for a business loan mostly seek caveat loans. If your business has been running only for a limited time and you lack business financials, you can take a caveat loan to improve your cash flow. Caveat loans are suitable for business that:
- Have been operating for less than 2 years.
- Have sufficient equity in land or property.
- Are not eligible for other forms of business finance.
Before we dive in and discuss how caveat business loans work, let’s take a look at their true cost and what you can use them for.
What Can I Use a Caveat Business Loan For?
A caveat business loan can be used for any legitimate business purpose. Any business-related expense can be covered by a caveat loan. You can use funds from a caveat loan to pay for day to day operational expenditures, improve business cash flow, make inventory purchases or grow your business through expansion:
- Staff salaries and wages
- Recruitment/Hiring of new staff
- Working capital
- Unexpected expenditures (damage/disaster)
- Advertising and marketing campaigns
- Website/application building
Company Expansion and Growth
- More company/retail locations
- Renovation of current premises/factories
- Improvements in property, plant and equipment
- Mergers and acquisitions
- Rebranding business
Inventory and Stock
- Buying, repairing and maintaining vehicles
- Purchasing raw material
- Buying or upgrading IT systems
- Purchasing financial instruments like stocks and bonds
- Buying inventory for resale
- Paying custom duty for release of goods
The Cost of Caveat Business Loans
The agreed-upon loan amount, loan terms and interest rates usually determine the total cost of taking a caveat business loan. Since caveat loans are short-term loans, most lenders charge interest on a monthly basis, which is usually 1% of the principal amount borrowed.
However, some lenders also charge additional fees for their services. These charges may include:
- The application fee
- Legal fees
- Asset (property) valuation fees
- Line fees
You must ALWAYS confirm with the lender at the time of application if you will have to pay any extra charges in addition to the interest and principal amount. Calculate the total cost of the loan before applying to ensure that you will be able to pay it back within the short time frame. The total cost may vary from lender to lender, so explore your options before making a decision. CashOnYourMobile provides caveat loans designed especially for business use to cover short-term lending.
How Does Caveat Financing Work?
We now know that caveat business loans are secured, short-term loans that require borrowers to use their property or lands as security. Let’s look at how caveat financing actually works.
Usually, when you take out a caveat loan, you will be allowed to borrow anywhere between $1000 and $50 million. However, the amount will be contingent on the value of the property or land that you are using as security. Most lenders allow you to borrow a specific percentage of your property’s value, usually between 70% and 90%. However, some lenders will also let you borrow to your asset’s full value.
A “caveat” is basically a document that is lodged on the title of an estate. Only one caveat can be lodged on a property or land at one time. The caveat specifies to homebuyers or other lenders that the property or land is being used as security.
Once the caveat loan has been given to you, the lender has the right to claim ownership of your land or property if you fail to pay back the loan with interest within the agreed time frame. Until you have paid off the caveat loan, you cannot use the same land or property as collateral in any other loan, and you cannot sell it because the lender has the ownership right.
Secured Business Loans vs. Caveat Business Loans
From all that you know about caveat loans so far, are you wondering how they differ from secured business loans? While much similar to a traditional business loan, a caveat loan has a few notable points of difference:
- Caveat loans are short-term loans with a loan period of up to 12 months, whereas a traditional business loan can be given for up to 5 years.
- Caveat loans charge interest mostly on a monthly basis. Traditional business loans may charge interest quarterly or annually.
- Caveat loans have a short approval time. Applications are usually approved fast, within 1 to 2 days. Traditional business loans require a great deal of documentation and financial information about the business. It can take you months before you receive the loan.
- Traditional business loans have lower interest rates than caveat business loans.
- You cannot borrow as much as you like with caveat loans. You are only allowed to borrow up to the equity of your land or property.
Securing a Caveat Business Loan: A Real-Life Example
Jane has a bakery business, which she started last year, in 2019. She sells cakes, brownies, cookies, cupcakes and pastries across Sydney. Jane is looking to expand to Melbourne. She has found a great space on Swanston Street and has interviewed 2 to 3 people who can help her run her shop in the new city. All she needs is access to funds to lease the store, turn it into a bakery shop and buy kitchen equipment. Since she started her business just a year ago, her financial standing is not so strong. Hence, she cannot qualify for a traditional business loan. A friend advises her to look into caveat business loans since she has a small 2-bedroom apartment in North Sydney that she can use as collateral. Jane started searching for caveat loans Melbourne and Sydney. She came across CashOnYourMobile, Australia’s Most Trusted Lending Service, filled an online application form and received her funds within 2 days!
The Advantages and Drawbacks of Taking a Caveat Business Loan
Obtaining a caveat loan is a simple process. But before you make your decision, you must be aware of all the advantages and drawbacks taking a caveat loan might incur. In this section, we discuss the pros and cons of taking caveat business loans to make your decision easier!
- Caveat loans have a fast approval rate and are an easy way to secure short-term financing.
- Your credit history or score does not impact your ability to obtain a caveat loan.
- A caveat loan is very versatile as it can be used for a variety of business-related purposes.
- Caveat loans do not require business documentation like revenue forecasts, trading history details or proof of income.
- Depending on the value of your property, you can borrow any amount! This flexibility makes caveat loans attractive.
- A caveat loan has a higher acceptance rate than traditional business loans.
- One of the biggest disadvantages of taking a caveat loan is the high interest rate attached to it. Because they are short-term, convenient loans, they have higher interest rates than traditional business loans.
- You will need to make monthly repayments towards your caveat loan, so you must set a budget aside every month. Monthly repayments can leave behind insufficient money for other necessary expenditures.
- Caveat loans cannot be given for a long term. You will have to pay the loan back between 1 and 12 months.
- A caveat loan requires you to set your property or land as collateral. You will not be considered eligible if you do not possess ownership of estate.
- Caveat business loans are high-risk loans. A lender has ownership over your land or property and can seize it if you default or fail to repay.
- Since it has a fast approval speed, a caveat loan can incur extra fees and charges such as establishment fee, application fee, monthly fee, late fee etc.
- The property or land used as security cannot be sold or used as collateral for another loan until the caveat loan term has ended and the loan has been repaid in full.
Applying for a Caveat Business Loan: A Step By Step Guide
Step 1: Gather all required documents you need to apply for a caveat loan. Most lenders ask for:
- Proof of property or land ownership showing sufficient equity
- Proof of identification (birth certificate/passport/citizenship certificate/Medicare card/driver’s license/Student ID card)
- Pension/concession card (if applicable)
- Address and contact details
- Proof of income (optional)
- List of assets and liabilities
- Exit plan to repay the loan
- Direct deposit account details
Step 3: Wait for 1 to 2 days for approval from one of Australia’s Most Trusted Lenders.
Step 4: Electronically sign the loan contract and wait for funds to be transferred to your account!
Frequently-Asked Questions about Caveat Business Loans
Q1. How much can I borrow with a caveat business loan?
A: You can borrow 70% to 90% of the property’s equity or land when taking a caveat loan. Some lenders also allow you to borrow 100%. If your property has a value of, let’s say, $90,000 and the lender offers 90%, you can borrow up to $81,000.
Q2. Is it possible to get a bad credit caveat business loan?
A: Yes! Bad credit will not necessarily affect your ability to get a caveat loan. If you have a bad credit score, do not hesitate to apply. Trusted lenders, like CashOnYourMobile, will not only help you secure the loan but will also advise you on how to budget the monthly repayments.
Q3. What properties are accepted for caveat business loans?
A: Many different types of properties are allowed by lenders in caveat loans. Commercial buildings, residential homes and land-only titles are common properties used as security in caveat lending. You must ask your lender what type of property they accept.
Get Fast and Secure Caveat Business Loans from CashOnYourMobile!
Whether you are located in Sydney, Perth, Brisbane, Melbourne or any part of the Land Down Under, CashOnYourMobile’s services are open for you! Visit our website today for more information on traditional and caveat business loans, and click the “apply now” button to get your funding within hours!