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Caveat loans for business owners
Business caveat loans are used to access business funding between $1,000 to $50 million, with lending amounts relative to the available equity in the property used as security.
Caveat loans require minimal documentation and have a faster approval turnaround than traditional business loans. However, they also have shorter terms, higher interest rates, and can only provide access to funding up to the value of your property.
What is a business caveat loan?
Business caveat loans are a type of short-term business finance secured using a property owned by the business owner. The amount you can borrow is based on the available equity in the property.
They have faster approval times and higher interest rates than traditional secured business loans.
How do business caveat loans work?
A business caveat loan uses your property or land as security against the loan. This allows faster approval speeds on applications, as lenders focus on assessing the available equity in your property as opposed to other aspects of your finances.
They will generally approve an amount between 70% and 100% of the property value.
Business caveat loans are similar to standard business loans, with a few points of difference:
- Most caveat loans are approved within one or two days
- Loan terms are shorter — often between 1 and 12 months
- Many caveat loans charge interest at a monthly rate instead of annually
- Interest rates are generally higher than other forms of business finance
- Minimal documentation required to apply (similar to a low doc business loan)
- You can only borrow up to the value — or a percentage — of your property’s equity
- Credit history and score not as important for the lender when assessing the loan application
- Property used as security cannot be sold or used as collateral until the loan is repaid
What is a caveat?
A caveat is a document lodged on the title of real estate. It indicates to other lenders or potential property buyers that a third party has an interest in the property and that is being used as security for a loan.
Only one caveat can be lodged on the property at a time. The property cannot be sold while there is a caveat placed on it.
When to consider a business caveat loan
Business caveat loans are most often used by small-business owners, who cannot meet traditional qualifying criteria for a business loan.
Limited operating time and a lack of business financials are major hurdles when applying for most business finance. However, if the business owner has equity in a property they can benefit from the limited requirements and fast access to cash flow offered by business caveat loans.
While there are benefits to caveat loans, their high rates and short terms generally only make them suitable if:
You need funds faster than other options will allow for
You're unable to access other forms of business finance
You own a business operating for less than two years
You have sufficient equity in property or land
Caveat loan uses
Business caveat loans can be used for any legitimate business purpose, including managing your day-to-day operations, making inventory purchases, or expanding your business to further growth.
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Caveat loan rates and borrowing limits
Business caveat loans can range anywhere from $1,000 to $50 million. Caveat loans allow you to borrow up to a specific percentage of the available equity in your property — most lenders will offer between 70% and 90%. However, some lenders allow borrowing up to the full equity value.
Business caveat loan interest rates are generally higher than other business loans. As caveat loans are designed as a short-term finance solution, interest is often charged monthly. Many lenders will offer interest rates from 1% per month.
Caveat loan fees
Caveat business loans usually come with a number of fees:
Application fees
Property valuation fees
Legal fees
Line fees
When comparing various lenders for a caveat loan, it's important to consider any initial or ongoing fees — such as property valuation or monthly fees — before applying. This will ensure you understand the total overall cost of your caveat loan and are comfortable you can make repayments.
How to qualify and apply for a caveat loan
Applying for a business caveat loan is simple, and requires fewer supporting documents than a standard business loan.
As the loan amount is based entirely on the borrower’s available equity, the lender will only need to assess the value of the property to determine eligibility.
To apply for a caveat loan you will need to:
- Complete an online application with a lender
- Provide a list of assets and liabilities
- Provide proof of property ownership
Lenders are often able to approve an application within two hours. If your application is approved, funds can be transferred to you within 24 hours.
Faster approval is possible with some lenders if the borrower:
- Provides proof of income
- Has no history of bankruptcy
- Can demonstrate an ability to make repayments
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