Business Caveat Loans vs Coronavirus SME Guarantee Scheme for Credit

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Obtaining Business loans in the era of Covid19
May 14, 2020
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Why the Government Guarantee Loan Scheme?

It is well known that access to business loans and funding helps business growth. Consequently, this is why one of the first tasks to support economic growth in developing countries is finding access to business funding. As a result, in an economic downturn such as now; access to business funding is paramount.

However, in an economic downturn lender’ are less willing to provide funds. Indeed, lenders must give profit to investors. Nonetheless, those investors seek to reduce risk; or want higher returns for that risk; or both. Therefore, what access to business funding is available in this covid19 era?

What is the Government SME Loan Scheme for Business?

The Australian Government understands access to business funding is paramount to rebooting the economy in Australia. Consequently, the Government has approved access to $40B of lending to SME’s through various SME lenders. As a result, under the SME loan scheme, 50% of the loan funds will be guaranteed by the Government.

The Government SME COVID Loan Scheme intends to give the lenders an enhanced willingness to lend in this economic downturn. Therefore, a wide range of lenders is available with a variety of features, credit policies and requirements.

Businesses can access working capital via the Government SME Covide Scheme. However, these Government-supported loans cannot be used or debt consolidation.

The government loans are unsecured business loans, so the business isn’t required to offer security.

Loan Saver Network can provide access to the Government SME COVID Loan Scheme by calling 1300 796 850.

Government SME Loans Features

  • Firstly, the loan scheme is for SMEs; such as sole traders, with a turnover of up to $50 million.
  • Secondly, the maximum total size of a loan is $250,000 per borrower.
  • Thirdly, loans will be up to three years, with an initial six month repayment holiday.
  • Finally, the loans are unsecured finance. As a result, this means that borrowers will not have to provide an asset as security for the loan.

However, though the Government will support the loans and offer the funding, indeed, the lenders will facilitate the assessment, credit guidelines and policies for the loans.

Business Caveat Loan Options

The Government SME Loan Scheme delivered through the various SME lenders still requires credit assessment. Consequently, the loans are assessed on the income history before COVID, with the impact on income ignored. However, not all businesses will fit within the lender policies. As a result, a business may need to source business loans from other avenues such as caveat loans or other forms of both secured and unsecured business loans.

What is a Caveat Loan?

Caveat loans are a simple form of business finance used extensively in business circles. Certainly, caveat loans assessments don’t usually require income or extensive credit assessment. However, they can be a suitable option for businesses with low cash flow; however, caveat loans need to be understood.

Caveat Loan Benefits

  1. Firstly, simple credit assessment.
  2. Secondly, they offer fast access to money. As a result, settlements can occur within 24 hours.
  3. Thirdly, the loans are interest-only loans which reduce monthly commitment.
  4. Also, capitalised loan payments are available.
  5. Plus interest rates are fixed for the loan term.
  6. Extensions to loan terms can be available at the end of the loan term (rolled over). (conditions apply*)
  7. Finally, residential property, commercial property and vehicles can be used for security.

Caveat Loan Risks

  1. Firstly, there is a reduced appetite for lending has resulted in lower LVR ratios.
  2. Secondly, lender fees and interest rates can vary widely. In some cases, costs to establish can be quite high.
  3. Thirdly, some lenders have short loan terms. Therefore, a good exit strategy is a requirement for those lenders.
  4. Also, suitable only for business purpose.
  5. Finally, some of the fixed fees can be quite high; therefore, small loans can be expensive.

Should you apply for a caveat loan?

Caveat loans are an excellent option to access funding for many businesses. However, they have their risks, just like any form of lending indeed, if you have never taken a caveat loan before you should gather as much information and understanding for the loan products prior to any application.

Caveat loans are very different from other loans you may have used before. Because the caveat loans don’t fall under NCCP consumer requirements with varying fees, repayment terms, and other differences they can be open to being misinterpreted. Consequently, we highly recommend obtaining independent financial or legal advice. Also, using a professional loan advisor to ensure you get a suitable caveat loan for your business.

Contact Loan Saver Network on 1300 796 850; for access to working capital loans such as caveat loans. However, we can also offer access to the various lenders providing the loans provided via the Governments COVID loans scheme.

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