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A caveat loan agreement is usually a handful of pages, not a bank-style facility document. That brevity is part of why these loans move fast, and also why each clause deserves a careful read.
The charging clause
This is the clause that makes the loan a caveat loan. The borrower - and often the guarantor, if the guarantor owns the property - charges its estate and interest in the land with repayment of the debt. That equitable charge is a caveatable interest, and it is what entitles the lender to lodge a caveat with the land registry. If the clause is missing or badly drafted, the caveat can be challenged and removed.
Most agreements go one step further and include either an unregistered mortgage or a promise to sign a registrable mortgage on request. On default, that lets the lender move from a caveat, which only blocks dealings, to a registered mortgage, which carries a power of sale.
The commercial terms
- Amount and term. Usually one to six months. Check whether there is a minimum term, because repaying early does not always reduce the interest bill.
- Interest. Quoted per month and often prepaid from the advance or capitalised. Confirm which, because it changes the cash you receive on day one.
- Fees. An establishment fee, legal and lodgement costs, and sometimes a valuation fee. Every fee should appear as a dollar figure before signing. See caveat loan fees.
- Default rate. A higher rate that applies if the loan runs past its term or another default occurs. This is the most expensive clause in the document. See default interest rates.
Guarantees and the business purpose declaration
Where the borrower is a company or a corporate trustee, directors normally give personal guarantees. The business purpose declaration confirms the loan is wholly or predominantly for business or investment purposes, which is what places it outside consumer credit law. Signing one that is untrue has real consequences - see what happens if a business purpose declaration is false.
What to check before signing
The exit the lender is relying on, the exact date the term ends, what an extension costs, whether the caveat covers one property or several, and the total payable if the loan runs to term. If any of those cannot be answered in a sentence, the agreement is not ready to sign.
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Get matched with a funderFAQ
Why does the agreement include a charge over the property?
A caveat can only be lodged by someone with an interest in the land. The charging clause creates that interest, so without it the caveat would have nothing to stand on.
Does a caveat loan agreement include a mortgage?
Often it includes an unregistered mortgage or a right to call for a registrable mortgage on default. That lets the lender step up to a registered mortgage if the loan is not repaid.
Do I need a lawyer to sign a caveat loan agreement?
Guarantors are usually required to get independent legal advice, and borrowers should. The default terms and the security reach are the parts worth having explained before signing.