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Lenders advertise ranges, but the honest answer to how much is always the same sum: value, less existing debt, within the LVR the security supports.
The bottom of the range
Most caveat lenders have a working minimum somewhere around $50,000. The reason is cost, not risk. A $30,000 loan needs the same title searches, documents, legal work, caveat lodgement and withdrawal as a $300,000 loan. Spread over a small amount, those fixed costs push the effective price very high. Where the need is that small, an overdraft, a business credit line or an ATO payment plan is usually a better answer.
The top of the range
There is no formal maximum, and caveat loans of several million dollars are written. But as the amount grows, lenders become less comfortable relying on a caveat, which is a lighter security than a registered mortgage. Past a certain size they will want a registered second mortgage or a first mortgage, and the borrower benefits too, because those structures price lower. See caveat loan vs second mortgage.
The real limit: combined LVR
Take a commercial property worth $2,000,000 with a bank mortgage of $900,000.
- 65% of $2,000,000 is $1,300,000.
- Less the bank debt of $900,000 leaves $400,000.
That $400,000 is the indicative ceiling for a caveat loan, and fees and prepaid interest come out of it. If the borrower needs $600,000, the options are additional security, a second mortgage at up to around 75% combined LVR, or a refinance of the whole position. Vacant land, rural and specialised property carry lower LVR ceilings. See what LVR can I borrow.
Using more than one property
Equity can be pooled. A caveat can sit over the company’s premises and a director’s investment property at the same time, with the owner of each signing as borrower or guarantor. This is common where no single asset has enough room. See borrowing against property held in two entities.
Matching amount to exit
The amount should also fit the exit. A lender will ask how $400,000 gets repaid in four months. If the answer is a refinance, the new loan has to be big enough to cover it. If it is a sale, the net proceeds after the bank is paid must cover it. An amount that the exit cannot repay will not be approved, whatever the LVR.
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Get matched with a funderFAQ
Can I get a caveat loan under $50,000?
It is possible with some lenders, but the fixed legal, lodgement and valuation costs make very small caveat loans expensive relative to the amount. Below that level other forms of business finance are usually cheaper.
How do I work out the most I can borrow?
Take a conservative value for the property, multiply by 65%, and subtract what is owed on the existing mortgage. What is left is the indicative ceiling, before fees and prepaid interest.
Can I use more than one property to borrow more?
Yes. A caveat can be lodged over several properties owned by the borrower or guarantors, and the equity in each is added together.