Features and Purpose of Caveat Loans

Financing is an integral part of any business, which is why we all look for ways to find the right kind of finance for our business. One of the forms of financing is getting funds in ways of loan from lenders. Now, if you look closely, then you will find that there are two types of financing namely, long term loans and short term loans. Caveat loan here is deemed as a form of short term loan which makes it essential for any business. As compared to other loans, caveat loan is often described as a short term asset based loan.

Caveat Loans

Features of the loan: 

    • Quick Approvals: The reason people opt for short term loans is because these loans are sanctioned very fast and when it comes to caveat loans then getting approvals are even better. In many cases it has been observed that the caveat loan is being sanctioned within 24 hours which can only be an advantage for any businessman.
    • Security: From the point of view of the lender, this type of loan is deemed secured. The reason for this is the fact that these loans are usually secured on the value of reliable assets such as commercial property, house, property, etc, which makes the recovery of the loans easier.
    • Use of funds: When it comes to caveat loans, the purpose of the loan is strictly defined. Here, the uses of the funds are restricted to the business and nothing else. If it is found that you have used this loan for any other purpose other than the one pertaining to the business, then legal steps can be taken against such borrowers.
    • Interest and tenure: One big advantage of using caveat loans is that the interest charged on such loan principal is very less. Moreover, the tenure of the loan is usually 3 years. Therefore, when it comes to repayment, the borrowers get ample time to pay the loan amount along with the interest back to the lender without any hindrances.


Purpose of the loan:

    • Working capital requirement: In order to make sure that your business is in good shape, it is imperative that your working capital requirements are met. Here, you can use the caveat loans for this particular purpose. It is pretty normal for any business to run into a crisis but these loans work wonders to help the business recover and move forward. This effect assists in the day to day functioning of the business and improved cash flows.
    • Development and Expansion: If you have any plans of expanding your business or developing a unit of the business or construct additional features on the premises of the business or other premises which are owned by the business, then you will need additional capital. This is where caveat loans are used as additional financing. With the help of the funds arising from these loans, any plans as mentioned above can be taken care of.
    • Sudden Requirements: It is possible, that you might not have cash in hand to pay your creditors or pay your taxes and other bills. But with the help of caveat loans you can get the required cash in your hand in less than 24 hours.

Lenders perspective: 

At the end of the day, the lender is the one who is providing you with the loan; so you should be aware of what they are looking for in prospective borrowers.

    • Exit strategy: The lenders are interested to know how the borrowers intend on paying the loan amount back. Therefore, borrowers with sound exit strategy are more likely to get the approvals faster.
    • Equity factor: They also try to find out the stake you have in the property mortgaged for acquiring the loans. Hence, it is recommended to bring to the attention of the lender as to how accessible your assets are to them.


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