Caveat Loans & Business Mortgage Financing
Effectively, a caveat loan is a short-term business loan. This product features fast approvals, with successful applicants getting cash in as little as two days. Issuers can do this because caveat loans are a type of secured business loans, focused on property or land- once the loan is approved, the lender will lodge a caveat against the title deed to secure his interests – similarly to the way banks work with mortgages. With no credit checks or income proof required, processing times are often lightning fast for this type of loan.
Finding Caveat Loans and Business Mortgages in Australia
Caveat Loans = No Further Refinancing or Dealings
Once a caveat has been lodged on a certain property, it means that any further dealing with the property such as selling it, or refinancing it, is forbidden and in fact impossible. Similarly to mortgages, if the borrower has not made his repayments it does not give the lender full control over the security but instead provides it with an equitable part of the property.
Typical Caveat Loans
Typical caveat loans will be for between 1 and 12 months and are intended as a short term financing. While the interest rates are significantly lower than of an unsecured business loan, they are high enough for a small business to be in a problematic situation and risk of defaulting if repayments are not made.
Caveat Loans Interest Rates
As mentioned earlier in this article, getting a caveat loan might not be the best idea for medium or long term financing. Typically, private lenders advertise caveat loan interest rates on a per monthly basis. With many Australian lenders, that means rates of 0.99% to 1.5% per month.
At first glance, that looks great – until you extrapolate the number to a per annum rate. Using the above example, an applicant would be paying 12% to 18% per annum – or more. Cash-strapped borrowers are taking a serious risk by accepting these rates – if business doesn’t improve, they risk defaulting, and losing over the collateral in which the lender has lodged a caveat.
Business Mortgages, Are They the Same as Caveat Loans?
Business mortgages operate in the exact same way as personal mortgages and are very similar in concept to caveat loans – to get a business mortgage you will need a security, you will need to lodge the lender’s interest against the title deed, and you will be absolutely forbidden to resell the asset or refinancing it (but you can apply for a second business mortgage!). The typical interest rates are also somewhat similar to those of a business caveat loan.
Business mortgage relate to chattel mortgages (for a non-land security) and “standard” mortgages against land.
The difference? if you default on your loan, with a business mortgage, the lender can and will put up the property for sale.
Do some SME owners in Australia use personal property as security for a caveat loan or a business mortgage? Of course it is common that small businesses and sole-traders would use their own personal property as a security, and lenders are completely acceptive of that, but we would recommend otherwise if the said property is actually used for living; in that case, the risk would simply be too high.