Business owners finding it tough to secure funding through traditional lending channels should investigate the potential of a caveat loan. This lending solution can help get you exactly where you want to be commercially, and so long as you have the requisite equity in your property you can use it as security for the loan. Here’s how caveat loans work and what you should expect from the lending process.
What is a caveat loan?
A caveat loan – or a second mortgage – works differently from more traditional business loans. Rather than a lender investigating your company’s cash flow and therefore its ability to repay a loan, the borrower or their guarantor put up their own property (e.g. mortgage), which entitles the lender to register a caveat on the home.
Caveat loans are typically short term, usually over a six to twelve-month period, and the interest and fees you pay can be capitalised within the loan or monthly payments. That means you won’t have to worry about any unexpected out-of-pocket repayments for the full duration of the loan term.
Importantly, taking out a caveat loan won’t impact on your original mortgage arrangements. Your repayments will continue as usual.
Who is eligible for a caveat loan?
In order to apply for a caveat loan, business owners must own the property and have sufficient equity in it. If there is more than just the business owner on the property title, that will need to be managed during the loan process. In most cases, the property itself must be complete (i.e. not under construction or being renovated). If you are in the middle of building however, let your broker know. There are specialist lenders who will accept an incomplete property as security.
With experienced commercial lending experts like Ezi Private Lending, you can be assured that the application process for a caveat loan is straightforward and hassle-free. You will simply need to provide information including:
- Names and contact detailsof all persons on the property title.
- Business profileincluding your Australian Company Number (must be registered for at least 1x day) and what the business funds will be used for (e.g. cashflow or stock expansion)
- Important documents such as your home loan statement, property rates, driver’s licence for all persons on title, etc.
Understanding the five Cs
When assessing a traditional loan application, lenders will assess your situation using specific parameters, also known as the five Cs:
CAPACITY – What is your financial capacity to pay back the loan?
No need to show income or prove serviceability.
CAPITAL – How much capital are you putting towards this potential investment?
You are able to borrow as much capital as your equity allows.
CONDITIONS – What conditions are placed by the lender around how you will be able to use the loan funds?
No conditions – funds are deposited into your business bank account and you may disperse these at your discretion.
CHARACTER – How is your financial character, relative to your credit history and ability to pay back debts on time and in full?
Defaults, ATO debt and arrears are okay – we can still help.
COLLATERAL – Is the security you are putting up for the loan enough to justify the size of the loan you are seeking?
Your home equity will determine the amount that you can borrow.
As you can see, the application process for a caveat loan is typically far less involved than that of a traditional loan, resulting in fast and streamlined approvals.
Why commercial clients are seeking out caveat loans
“The biggest drawcard for caveat loans is the simplicity – it’s a fast, short-term funding option that gives you the cash you need with minimal outlay,” says Gary Rawlings, Managing Director at Ezi Private Lending. “That allows business owners to leverage the equity in their existing property to secure much-needed commercial funds.
“We work with many business clients who have been declined by traditional lenders and aren’t familiar with what a caveat loan can provide. But once they understand the process and its many benefits, they are able to get the lending support they need to boost cash flow and get back to doing what they do best.”
Could a caveat loan provide your business with much-needed funding at this crucial time? Contact the experts at Ezi Private Lending or call 1300 854 033 today. We can walk you through this unique lending solution and help you find the ideal lender for your business needs.