A caveat loan is the product Australian business owners reach for when a deadline is fixed and a bank is not an option. A tax debt with a payment date, a settlement that has to complete on Friday, a supplier who will release stock on cleared funds only. The money has to arrive in days, and the only asset with real value is property with equity in it.
I arrange these loans for self-employed borrowers, and I also talk a fair number of people out of them. Both conversations depend on understanding what the product is and is not.
The caveat is a notice, not a mortgage
Australia runs on the Torrens title system, where the land registry in each state records who owns a property and who holds a mortgage over it. A caveat is a document lodged on that register that says, in effect, “someone else claims an interest here, do not register a dealing without telling them”. It stops the owner selling or refinancing behind the lender’s back.
A caveat loan uses that mechanism instead of a registered mortgage. The lender’s actual security is a charge over the property created in the loan documents, and the caveat is the flag that protects it. Because no mortgage is registered, there is no need for the first mortgagee’s consent and no lengthy registration process, which is why settlement can happen inside a week. Anyone weighing one up should first read a plain explanation of how caveat loans work in Australia, because the speed comes with structural trade-offs that are easy to miss under pressure.
Why the bank is not in this conversation
The Reserve Bank of Australia has long noted that most small business lending in this country is secured by residential property, and banks are very good at that when the borrower has clean financials and time. What banks cannot do is move in four days for a borrower whose last two tax returns do not describe the current business, and prudential capital rules set by APRA give them no reason to try.
Caveat lenders fill that gap. They are private funds and non-bank lenders assessing on equity and exit rather than on serviceability history. Because the loan is for business purposes it generally sits outside the National Credit Code, which ASIC administers for consumer lending. That is what allows the speed. It also means the borrower carries more of the responsibility for checking the deal.
What a caveat loan actually costs
The rate is quoted per month, not per year, and the monthly figure sits well above anything a bank charges. On top of the rate there is usually an establishment fee, the lender’s legal costs, a valuation if one is required, and sometimes a minimum interest period, which means a loan repaid in three weeks may still be charged for two months.
The right way to read the cost is total dollars out for the expected term. A $200,000 facility for three months might cost more in fees and interest than a year of bank overdraft interest on the same amount. If the money stops a winding up application, secures a property at a price that could not be matched later, or releases a contract worth many times the cost, that arithmetic works. If it is covering a trading loss, it does not.
The exit is the whole deal
Caveat loans are written for six to twelve months and are not designed to be renewed. The lender approves the exit as much as the borrower: a refinance to a bank once the tax returns catch up, the sale of a property, the receipt of a large invoice, a capital raise. A borrower without a documented, believable exit should not be offered the loan and should not take it if offered.
Where it goes wrong
Three patterns account for most of the bad outcomes I see. The first is using short-term property finance to fund an ongoing loss, so the balance grows and the exit never arrives. The second is signing with a lender whose fees only become clear at discharge. The third is the founder who assumes the loan can simply roll over, then meets a default rate that doubles the cost overnight.
The protections are straightforward. Get the full cost schedule in writing before signing, including default interest and discharge fees. Confirm who the actual lender is and what happens if they are a fund that stops lending. Have your own solicitor review the deed, not the lender’s. And make the exit a dated plan, not a hope.
When it is the right tool
A caveat loan is the right answer when the need is short, the amount is small relative to the property equity, the purpose creates value or removes a threat, and the exit is already visible. A good broker’s job is to say no when those four things are not all true, and to make sure that when the answer is yes, the borrower understands exactly what they have signed.
Last Updated on September 12, 2026 by Nick Lim
