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Short-term loans fail for one reason: the exit was late. The sale took longer, the bank refinance stalled, the money that was coming did not arrive. What happens next depends almost entirely on when the borrower raises it.
Day one after expiry
The loan is in default. The agreement’s default rate replaces the standard rate, normally on the full outstanding balance, and it accrues daily. A loan priced at 1.65% a month can move to double that or more. Extension and default fees may also apply. Within a few weeks the payout figure is noticeably larger, which in turn makes the refinance harder, because the new lender has to cover a bigger debt within the same LVR.
The lender’s options
A caveat by itself does not give a power of sale. It stops the owner selling or refinancing without dealing with the lender. To enforce, the lender relies on the rest of the agreement: a right to call for a registrable mortgage, an unregistered mortgage already signed, or court proceedings for judgment and orders for sale. Guarantors can be pursued personally. These steps take time and cost money, all of which is added to the debt.
Lenders do not want this outcome. A forced sale is slow and uncertain. It is the last resort, and it is reached by silence more often than by genuine inability to pay.
What to do, in order
- Tell the lender early. Four weeks before expiry, not four days after. Bring evidence of where the exit is up to: the contract, the bank’s conditional approval, the agent’s campaign report.
- Ask for an extension in writing, with the fee and the new date. See can a caveat loan be extended.
- Refinance to a longer facility. A registered second mortgage or a private first mortgage over 6 to 24 months replaces a caveat loan that was too short for the job. See refinancing a private loan.
- Sell on your own terms. A sale run by the owner achieves a better price than one run by a mortgagee.
If the business is in trouble
If the reason the loan cannot be repaid is that the business itself is failing, more debt is rarely the answer. Speak to your accountant and, if needed, a registered restructuring or insolvency practitioner before borrowing again.
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Get matched with a funderFAQ
Can a caveat lender sell my property?
Not from the caveat alone. A caveat only blocks dealings. But most caveat loan agreements let the lender require a registrable mortgage on default, or the lender can obtain court orders, and either route leads to a power of sale.
How much is default interest on a caveat loan?
It varies by agreement, but it is commonly several percentage points a month above the standard rate, charged on the whole balance. It is the single most expensive term in the contract.
Will the lender extend instead of enforcing?
Usually, if asked before expiry and if the exit is still credible. Lenders want to be repaid, not to run a sale. An extension fee and a revised term are the normal outcome.