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What Is A Caveat Loan And How Does It Work For Small Businesses?

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If your business urgently needs money, it might be worth considering taking out fast caveat loans. Caveat loans are often used as a short-term business finance option that’s secured against real estate. As long as you have a property, whether it’s commercial or a family home, you can often use a short-term caveat loan to quickly gain access to funding.

What is a caveat loan?

A caveat loan is not the same as normal mortgage loans, as a caveat can be lodged on title immediately and enable a loan to be funded in a matter of days from application. Other terms often used to describe a caveat loan are ‘equitable mortgage’ or ‘unregistered second mortgage.’

A caveat loan is a fast-settling loan that offers a rapid settlement. In general, an application gets approved within a day and two, which makes funding available very quickly. Unlike normal mortgage loans, this type of loan usually requires no credit checks or proof of income. There’s typically no valuation or any formalistic bank-style due diligence. Also, bad credit history often doesn’t matter as much when applying for a caveat loan. This is because the credit is secured against real estate. With regard to repayment, a caveat loan is structured for a short period. Most borrowers repay it within a predetermined period, which is commonly within one to 12 months.

When you take out a caveat loan, the lender lodges a caveat on the title or the government records of ownership of your property. A caveat works like a form of an injunction. It protects interests on a property. The borrower is prevented from selling the property without the permission of the caveat loan provider. The caveat documents inform other lenders that a property has already been used for security. Therefore, it cannot be used for any other dealings. Once the borrower has settled the loan, the caveat is then removed from the property.

In Australia, caveat loans are widely available. Many lenders offer this loan type with a variety of features, which make them appealing for a business owner who needs an immediate source of funds. An example of one of these lenders is Mango Credit, a leading provider of short-term business finance. Mango Credit makes the process of obtaining caveat loans and other short-term loans simple, with flexible underwriting.

What are the benefits of taking out a loan?

Caveat loans may be considered for start-ups, commercial property investors and even established business owners. Below are some of the advantages of taking out a caveat loan.

  • Quick processing

From the application process to approval and settlement, caveat loans can be quickly done. Some applications even get approved within hours after application.

  • Minimal documentation required

Another reason why it’s easy to apply for a caveat loan is due to the minimal paperwork that’s usually required. Compared with mortgage loan applications, caveat loans have simpler documentation needed, and proof of income is often not needed. Even filing out of an online application can be done in only a few minutes.

  • Flexible loan terms

Loan terms for a caveat loan can vary and be negotiated with the lender based on your individual requirements.

  • Easy

Upon repayment of the loan, the caveat on the property can be quickly lifted with minimal fuss.

What are the typical uses of caveat loans?

Caveat loans are a fast source of short-term funds that can be used for many different purposes. Business owners commonly use this short-term option to manage cash flow. Here are some typical uses of a caveat loan:

  • Cash flow improvement

The money from a caveat loan can help manage business cash flow challenges, such as paying down invoices, meeting unforeseen costs or smoothing out the lag of late-paying customers.

  • Equipment purchase

A caveat loan is often used to purchase new equipment to enhance operational efficiency or extend the business’ offerings.

  • Business expansion

Businesses ready to expand commonly seek a caveat loan to support growth without impacting operational costs.

  • Purchase of more stock

Purchasing bulk stock (and receiving a bulk stock purchase discount in the process) is another common use for a caveat loan.

  • Paying off unexpected business costs

Unexpected costs are common in business. A caveat loan can be a handy alternative to cover emergency expenses.

  • Hiring new employees

A caveat loan can be useful to facilitate the hiring of new employees and help cover initial salaries while the new team members get up to speed.

Is a caveat loan suitable for your business?

Consider the following criteria when assessing a caveat loan – preferably in conjunction with your accountant:

  • Your business needs urgency of funds.
  • Whether you own a property or land to use as security against the loan.
  • How you will repay the loan in time.