Both businesses and households alike are experiencing the economic fallouts that are taking effect due to COVID-19. Businesses have been forced to close, a lot of households have experienced job losses, and frankly, there is still no available vaccine that ensures us that soon, everything will be back to normal.
Coupled with the economic fallout effect, most businesses have also felt that the banks of today are tightening criteria in approving loans or getting a traditional mortgage top-up. This has led to a lot of customers, households, and businesses alike to not be able to secure any loans at all.
Because of this, business finance advisers are all looking at alternative funding options that they can avail of and in the world of business and finance, one of these alternatives is getting a Caveat loan.
What is a Caveat loan?
As a business owner, you of all people should be able to understand how important it is to act fast whenever you see that there is a new and open opportunity you can grab. And whether you want to add and hire more staff or looking to replace or fill vacant positions in your business, move business addresses and physical sites, take on a new marketing scheme or campaign, re-target your audience and or a new consumer age group, maybe acquire equipment or fix old ones, acquire extra stocks, and a lot more things that you can think of in order for you to improve your business you would need extra cash, and fast. Getting a Caveat Loan can be your answer to this.
The word caveat in Latin means “let him beware” and comes from the verb “cavēre” which means “to be on guard.”
A Caveat loan usually coincide as being a second mortgage but that is totally not the case. A caveat loan is a type of funding that is secured by real estate, either private or business property. This gives you the chance to be able to access the equity in the property in order to be able to use them for business purposes.
This helps maintain and ensure a client’s relationship with the main bank in which the property has an initial mortgage with, without refinancing the mortgage but being able to provide a solution to possible pressing financial needs.
The Caveat loan works like a warning issued to other lenders that the said property has already and is currently being used as security. It protects the lender, in this case, because the owner will be unable to sell the property without permission from the lender who has a hold on the Caveat loaned property.
Caveat Loan vs. 2nd Mortgage
As mentioned above, a Caveat loan is oftentimes confused with a second mortgage, and a lot of financial institutions have actually helped blur those lines, this is so that they can name what is actually the 2nd mortgage but pass it off as a Caveat Loan. Again these are two very distinct loan plans.
A second mortgage is where the first mortgage is still in effect which allows an owner to borrow against their home equity. In the event of default, the original mortgage would be the one to be receiving all the proceeds from the liquidation of the property mortgaged.
A Caveat loan on the other hand is closer to security and not a loan product. You will not be able to seal the mortgaged lot, rather, the Caveat would be there until the debt has been paid off. To pay it off, you must simply follow what the terms and conditions the caveat lender has provided for.
A Caveat loan is also a short term loan compared to a second mortgage, which can be a long-term one.
Instances that can be funded with a Caveat Loan
Some would ask why in the world would I get a Caveat Loan when I already have a loan in place? Business owners actually need additional funds in order to fund everyday expenses in running my business. But before we get into the business side of things, what are the most reasons why someone will apply for a Caveat loan? These are only some of the many reasons:
- When someone needs cash while an investment is pending
- Opening more locations in a business
- Hiring new employees
- To make payments on something
- To incorporate a new and fresh marketing campaign or strategy
- Property Improvements
- New machine purchases
- Customs payment to release goods stuck in custom
- Purchasing Stocks and other investments
- For use for a non-refundable deposit risk
- When the financial need of a business is higher than the cost of getting a caveat loan
TOP 10 WAYS A CAVEAT LOAN CAN HELP BUSINESSES GROW
After knowing what a caveat loan is, what exactly can it do to help businesses grow? Here are the Top 10 ways a Caveat Loan can help a business grow.
#001 Restricts a business owner from further borrowing
Not quite what you expect for the first way a Caveat Loan can help a business grow. But it is true. When you place a Caveat Loan unto a property, the caveat will secure the property, and because the caveat is secured, you will no longer be able to sell that property and will not be able to, in any form, use that property again as a security until the debt has been fully paid and the Caveat Loan lifts.
This is how a business can benefit from this type of loan. Having a restriction like this can prevent you or any other business owner from making rash decisions that can damage you, or them, financially. One of these quick and rash decisions one might make is being tempted to take in another security loan because of “good deals,’ but ultimately, because you can’t get additional funding using your property that has a caveat loan secured unto it, you cannot place yourself in any further debt by taking out a lot of loans all at once.
#002 Instant Release of Caveat once repayment is made
Usually, businesses have trouble when managing to pay off a mortgage or a secured debt, they have to wait for some time in order for their property to clear before securing another financial loan. This is so they can avoid being red taped. This automatically ensures businesses that they can secure other financial loans or securities using the property that was recently freed from the Caveat loan almost immediately upon repayment of the loan.
This is a good thing for businesses because they can already plan ahead once a Caveat Loan releases, and the business is ensured that there will be funds to use for various expenses that the business has in order to run every day.
#003 Quick Approvals
Time is of the essence. This is something that all those who are included in the business sector, the owners, the employees, the financers, the marketers, the investors, and a lot more, already know. When it comes to some of the things business-wise: Time is equal to money, not including and counting of course the things that need to take time in order to get maximum results.
Caveat loans are one of the kinds of loans that are simple. It only usually takes one a few minutes to apply. For example:
After applying online, most Caveat Loans only need to wait for about 24 to 48 hours for the loan application to be processed. During this time, the lender that you sent the application to will conduct their checking and create for you the caveat document. When everything checks out, you get the funds almost immediately as well.
This is why caveat loans make a great alternative choice for businesses and business owners. While a lot may have several or more than one property asset, some businesses may actually not have the right cash flow or any cash flow at all that is required to keep their businesses operating.
Caveat loans will help those who are in need, deal with their cash flow problems. They would also not have to wait long to receive the money from the caveat loan once approved, unlike the many other loan types out there.
#004 Fewer Document Requirements
Ah yes, document requirements. These are the bane of existence for those who are applying for loans, be it in business, or in private loans. This is where often people would miss out on a thing or two and ultimately fail in the financial institutions checking. Some even try to send out a lot of applications to different financial institutions but ultimately end up failing all of them.
Of course, there are reasons behind this strictness in looking for documents, as many types of financial institutions where one applies for a business loan require a business owner to gather a lot of documents. These financial institutions want to see proof of income and expenses, checking each and every one of them thoroughly, before deciding whether or not to grant the loan they applied for.
Caveat loans are different than any other loans because of the lending institution’s use of your property. This means that you don’t actually need to provide details that you are uncomfortable providing. This also helps speed up the application process as stated in the 3rd reason. In almost all of the cases, the financial institution you’re applying for
Caveat loans differ because of their use of your property. This means that you don’t have to supply a lot of details that you may not feel comfortable providing. It also aids in the speed of the application process. In many cases, your lender won’t even have to conduct a valuation of the property you’re looking to put under the caveat loan.
This helps in making this kind of loan suitable for businesses that have a complex financial structure in running their business. Skipping the evidence gathering portion in applying for the caveat loan means getting your funding a lot faster.
#005 Increases Lender Confidence in your Business
When everything has all been said and done, it all boils down to one reason: Is the financial institution you’re applying for a loan confident that you, your business, will be able to pay back the loan?
If not, and if this is the answer to most of the financial institutions you apply for your loans, then your applications will never be approved.
The best thing about Caveat Loans is that they use the property that you own in order to improve the financial institution’s confidence in you. The lender, in this case, knows that they have security on the loan you applied for, and should you be in default then they can proceed in what your caveat loan entails; taking ownership of the property and liquidating the property to cover costs.
This security makes most, if not all lenders, a lot more flexible. And as a result, it is quite possible that you will be able to easily secure a lot more money through a caveat loan than in applying for any other loan financing options.
#006 Funds given are actually managed
The funds that are given to you or other business owners are actually managed. What does this mean?
Caveat loans actually come with specific terms in relation to how you, or other business owners who have been able to secure their funds or are applying for their Caveat Loans, use these funds. This is actually part of the application.
Business owners have to specifically report to the financial institution how they intend to spend the money they are applying for. This is something that the financial institution also uses in order to come up with a decision to approve of your Caveat loan.
This then means that the financial institution may be able to take any legal action should the funds coming from the Caveat Loan is used for something other than that of the purpose to which it was intended and specified in the application.
While others may be taken aback at this, it is actually a good thing about a Caveat Loan. How so?
There are two main reasons as to why. This helps further increase the confidence of the financial constitution to you and your business. This means that you may be able to get better terms with your Caveat Loans than you can get with the other types of financial loans out there.
The second reason is that it helps you to manage properly the funds given to you by the financial institution. These restrictions in place will ensure not only the financial institution, not only yourself but also the business that you own and are growing that you will use the money as intended. No longer will you face temptations in using the Caveat Loan Funds for other things that may suddenly sprout up as you continue on with the business because in doing so, you know that there will be consequences.
#007 Lower Interest Rates
Financial institutions are actually very wary of granting a second mortgage to anyone, much less a business still on the verge of growing. As a result of their being wary, they place very high-interest rates on the second mortgage deals. Additionally, businesses would have to add in the interest rates of 3 to 4% from the first mortgage to the interest rates of the new mortgage and you actually end up increasing the totality of your expenses with the second mortgage, which does not help at all.
Caveat loans offer a lot of lower interest rates than any other business loans that financial institutions have. Some institutions that offer funding via Caveat Loans actually offer about 1.80% rate, and this is a considerably lower and better rate than any of the other rates you can get with a second mortgage.
These rates are also better compared to other types of financing. A business loan in Australia has a rate between 5 and 7 percent, and this can increase a lot further depending on the terms of the loan.
Caveat loans offer that much more affordability because of the added security that comes from using the property of the debtor.
#008 Better planning, financially and growth-wise
Getting a Caveat Loan means you or any other business owner actually plan better for the business. Why is this so?
Because as stated earlier, you would have to actually only use funds that are stated when applying for the Caveat Loan, this means that before applying, one must actually need to know where the fund is actually going, and not apply just to cover up random expenses that pop up daily. This means that there is a big probability to be able to over-prepare. And in business, preparation goes a long long way.
Not only preparation for the beginning, but also for when the business has already repaid the Caveat Loan. With the automatic release of the property from the caveat security, then you or any other business owner can immediately opt into another loan for the benefit of the business. And this may be pre-planned as well.
#009 Ensures that there is cash flow in the business
Earlier there was already a mention of this in one of the reasons above. A caveat loan will be able to help businesses in terms of cash flow. While it may be true that a business has a lot of properties to its name or even owned by the owner of the business. But in reality, this is nothing of importance to the everyday cash expenses needed for the business, and this is where Caveat Loans come in.
Business owners may put into the Caveat Security the properties that they have and secure a Caveat Loan to use it for certain expenses that can be presented during the application for the Caveat Loan. In effect, this will help the business already have funds for certain expenses that they incur every day and other income and the additional funds or income that they receive outside of the Caveat loan can be expropriated accordingly to other things that are as of equal importance in making sure that the business continues on.
#010 Helps a Business to prioritize
Priorities of a business can be shortened into as the mission of the business. This mission is what the business aims to achieve and become while time passes. Caveat Loans can help businesses to prioritize how?
Caveat Loans are as defined, short term loans that in applying for needs property for security the use of the funds defined for what use they are for, this means that the business can prioritize spending the fund on something that can help their growth, and not just in their everyday expenses that they incur.
When a business knows how to prioritize something, then they can slowly start improving and growing, and if they use the funds from their Caveat Loans, they will and can only be spending the said funds to what is stated in their application. This in turn can help them improve things as a certain fund is already available for that certain appropriation only.
In applying for a Caveat Loan, make sure that you are able to understand exactly what Caveat Loans can bring you, in order to b make use of this kind of unique loan style properly. Again to sum everything up, Caveat Loans offer lesser rates of interest than any other rates of other financial loans of financial institutions, even second mortgages. Fast approval and fewer documents are needed in the application. Furthermore, the reason or the use of the loan funds applied for, need to be determined and clear when applying.
And finally, applying for a Caveat loan makes use of a property of yours for security in order to make the lender be more confident in the approval of the Caveat Loan for you. This only means that you can be able to access more money in using a caveat loan than you would other loan plans and types.