Private lending options
There are a number of private lending options in the market, but none are as fast as a caveat loan, with right to second mortgage.
Firstly let us define what a caveat loan is.
What is a caveat loan?
It is where Party A has provided funds or services to Party B, and Party B has given the legal rights for Party A to register a security interest against their assets, in this case a caveat. A caveat is simply a legal claim that is registered against a property, stating that funds are owed to Party A, that prevents the owner of the property (Party B) from taking a loan or transacting with this property (there are legal mechanisms to challenge this) . A caveat is not like a mortgage, that allows a lender to take possession in a worst-case scenario and put it for sale. It simply acts as a block, and it ranks behind other mortgage holders and caveat holders that are already in place.
Second mortgage loans vs caveat loans
Second mortgages are a security interest registered against an asset, by a private lender with that right being provided by the borrower for funds loaned to them. A second mortgage ranks behind the first mortgage holder, typically a bank, and takes time to register as a lender. Therefore in business, the quickest way to provide funds to a business is via a caveat loan, with the private lender later having the right / option to register a second mortgage.
A second mortgage, takes time because it in effect notifies the first mortgage holder (typically the bank) of the financial claim of the second mortgage and the private lenders position. It also notifies the second mortgage holder of the first mortgage holders position, and their claims to the asset.
Because the second mortgage ranks after the first mortgage holder. The registered mortgage gives the private lender comfort of their security position, whilst also ensuring the caveat loan is executed as quickly as possible for the borrower (typically within 7 business day).
Superior caveat loans
The other reason caveat loans and second mortgage loans are superior for business loans, is because the dollar amount can be quite large depending on the equity in the property of the borrower. Most unsecured cashflow lenders will only go up to $500k, whereas a caveat loan / second mortgage, can go into the millions of dollars.
Not all private lenders are equal!
Unfortunately, not all second mortgage loans or caveat loans are equal, as each private lender approaches them differently. Some private lenders will require a deed of priority from the bank holding the first mortgage. Whilst the banks are legally obligated to provide a deed of priority, they can usually take their time, which delays the process. The other issue is, a lot of private lenders, won’t do the loan if the LVR is too high (above 70%), as they don’t want to come close to the dreaded 80% LVR mark.
In essence the first mortgage and second mortgage / caveat combined with all fees inclusive, should not go beyond 70% LVR for most private lenders.
The 80% LVR mark is there for a reason, and that reason is because it is the LVR point, at which the borrower can refinance via a second tier lender or bank, in addition to leaving a percentage of equity as a buffer should anything go wrong.
All of this means certain private lenders won’t be able to meet your capital requirements on time, or at all!
Our unique second mortgage loans and caveat loans.
Royce Stone Capital second mortgage loans are funded via family offices, and we have developed a unique methodology to avoid all of the above headaches.
- Our loans don’t require a deed of priority.
- Our loans can go up to 80% inclusive of fees (first and second mortgages combined).
- Funds can be provided within 7 business day
Because we work with family offices, they can hep underwrite the first mortgage debt and help you in negotiating with the banks during difficult times. All of this means you can move ahead with confidence, to achieve your business ambitions.
