HOW A CAVEAT LOAN CAN HELP YOU OVERCOME A SHORT-TERM CASH FLOW CRUNCH
Let’s look at caveat loans – what they are, the benefits of using them and common scenarios where they make sense when you need quick access to funds for up to 12 months.
What is a caveat loan?
The first thing to understand about caveat loans is that they are not like 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. Caveat loans are sometimes also referred to as an ‘unregistered second mortgage’ or an ‘equitable mortgage.’
You must own a property to take out a caveat loan against it. A caveat operates like a form of ‘injunction,’ which means the loan is lodged on title behind your existing mortgage (no consent is required from your bank to do so). This also means the borrower is prevented by a ‘caveat’ from settling the sale of the property without the permission of the caveat loan provider.
What are caveat loans for?
In Australia, caveat loans are a fast source of short-term funds that are commonly used to manage the cash flow between the sale and purchase of a property. If you have sold a property and need to pay for another, but settlement timing doesn’t match up, a caveat loan can be a great short-term solution.
In addition, caveat loans can be used to complete renovations or residential development projects. Caveat loans can help raise funds required for construction, with a caveat on the property, which will be released once the property is finished and sold.
Caveat loans are commonly used as a short-term option for business owners who need a fast cash flow injection, regardless of credit history. For example, you own a business and you:
- Have a large tax bill due immediately, but won’t have the cash to pay it for a few months.
- Could benefit from a working capital injection to maintain business operations to offset invoice lags.
- Need to purchase a large amount of stock (to service an order, or to take advantage of a bulk purchase discount) and need to fund it with short-term debt.
Similarly, fast caveat loans can be a good short-term solution for borrowers who need money in a hurry to do home renovations in preparation for sale, regardless of credit history.
What are the benefits of a caveat loan?
Caveat loans in Australia are widely available from a variety of lenders and offer a range of features that make them appealing for short-term loans when funds are needed quickly. The upside of caveat loans includes:
- They’re quick: Caveat loans can be applied for, approved and settled often within a few days.
- Minimal documentation required: The paperwork required for caveat loans is far less onerous than mortgage loans, making it easier and faster to apply for this type of loan.
- Flexible: Caveat loan terms are flexible and can typically be negotiated for anywhere from one month to three years.
- Easy: Once you have repaid the loan, the caveat on your property is lifted immediately with minimal fuss and red tape.
Key takeaway
If you own a property, even if it is the subject of a first mortgage, a caveat loan can be a fast and relatively cost-effective source of short-term funds for personal or business use. You can apply online for a caveat loan. Caveat loans in Australia can be used for a short period of time (2 to 36 months) for a variety of purposes.
The upside of short term caveat loans include:
- Take advantage of time sensitive opportunities, funding usually within a few days from application
- The caveat releases immediately once you refinance, payback or at settlement of your property sale
- Opportunity cost (i.e. the cost of missing out on the opportunity is a lot more than the cost of the loan)