Many people in the business world may not fully understand the caveat loan financing option. This may be due to the complex nature of business financing world. This has however made them to forego financial options that would best suit their specific needs. This, therefore, means that ignorance or lack of knowledge of the various financing options really costs a business owner. There is always power in knowing the exact type of financial option that can best address your custom business financial need at all times.
In this article, we will seek to understand caveat loans better which is arguably the most often misunderstood form of a business financial option. Caveat loan is structured such that the term is between one and six months. When you apply for a caveat loan, you will often get the approval within 24 hours. This is in sharp contrast to the traditional banking style of a loan taking quite some time going through valuation and doing due diligence which usually takes a long time. More so, caveat loans application does not need stringent adherence to the common requirements, in fact even not having a good credit history does not deny you a loan.
What is Caveat Financing?
To understand caveat financing, let us first look at the types of short-term business financing. There are two types;
- Unsecured loan
- Secured loan
Unsecured loans are the type of business loan that is given to a business owner without him/her committing anything of value. This means the funds are given without security. The loan does not give consideration to what the business owner has but his/her capacity to repay the loan by looking at his/her past experiences repaying similar or other kinds of loans accorded to him/her. Despite the track record being adhered to, this is a very risky venture for the lenders. For this reason, only a few of the lenders are able to take such risks. The loans given as unsecured are usually in small amounts to minimize the risks involved as much as possible. They are usually offered sometimes in the form of credit cards from banks and other similar lending institutions.
Secured loans, on the other hand, are the opposite. They are arguably the most common type of business financing.This is the type of loan that is given against a form of security. The security has to be something with a reasonable value, which is usually of more value than the loan applied for. The type of security varies widely from commitment by a company to any tangible asset. The tangible assets can be a real estate property, our home, your car or anything of value that you own and is acceptable by the lender. Why require security to get a loan? The answer to this is simple. There is a risk involved in the lender giving you the loan,especially for business loans. If you take a business loan, sometimes the returns and revenue generated do not turn out as expected and hence you may not be in a position to repay the loan. When you default the loan repayment, the lender will have to dispose of the security and the funds realized is used to offset the pending loan balance. This is usually done as a last resort after all the other ways have been employed by the lender to recoup the loan. Secured loans are of many types which include; bank guarantees, caveat loans, debtor financing, leases and hire purchases, a line of credit, mezzanine finance, overdrafts among man others.
Caveat loan, therefore, is a form of a secured business loan. Caveat financing can therefore be defined as the process where you secure a business loan against a valuable property or a piece of real estate or any other assets. Caveat loan is however different from all the other secured loan types. The lender will not sell off your property or asset which you gave out as a security in case you default the loan. The process involves you as the debtor lodging an ownership document called the title. This caveat document will stop any further dealings concerning the property like a sale or using it as a security for another loan. Simply put, the lender, by giving you a caveat loan against your property cannot sell the property when you default but simply becomes one of the owners.
Caveat Loans Repayment
You can make repayments of your caveat loans by using several means. This can include selling other assets, using revenue from your business or any other form of revenue for that matter. You can discuss this with your lender and plan a way of making the repayments which will be favorable for you and will not strain your business.
Importance of Caveat Loans
There are numerous ways in which you and your business can benefit from caveat loans. These include solving cash flow problems, settling invoices, buying equipment and any other financial business need.