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Business Caveat Loans vs Coronavirus SME Guarantee Scheme for CreditMay 24, 2020
How does Covid19 affect Caveat loans and other loans?
When businesses need working capital quickly, caveat loans are ideally suited. However, other lendings such as tax debt loans are being impacted with changes in line with the economic environment. Consequently, what are the policy changes at the moment?
Why are lenders cautious with Covid19?
An economic downturn affects the economy in different ways. Therefore, lenders respond to economic changes in the same way. Hence, reduced demand for property results in either a levelling of property values or a decline. Also, a higher unemployment rate translates to a higher number of mortgages being in arrears or default. Finally, a lowering of demand for services also puts a business at risk of insolvency and the bankruptcy of directors.
How are lenders responding to Covid19?
Covid19 has caused a dramatic and widespread change in the economic landscape. Consequently, some businesses are thriving and are overly busy. As such, they are struggling to produce enough product, or their services have escalated. However, this change also has meant a lot of businesses cannot trade. Hence, a non-trading business also cannot employ and pay staff.
The areas we see significant changes are:
- Firstly, the assessment of incomes is inflexible. However, policy changes are inconsistent, especially for casual employment.
- Secondly, at this stage, property values haven't been affected too much. However, lenders are cautioning that property prices may fall. Consequently, caveat lenders are reducing their loan value ratios (LVR) for their loans.
- Valuers are making negative comments in their valuation reports. Plus the valuers will be advised to offer valuation reports based on covid19.
- Finally, we have seen lenders' avoid specific industry sectors such as anything related to weddings and hospitality.
What loans are options available to assist business?
In light of the above points, there is still lending available for business. However, changes have been made to lending policy.
- Firstly, the changes to caveat loans relate to property values and the potential reduction in property values. Consequently, caveat lenders are reducing their LVR ratios across the board.
- Secondly, lenders are looking very closely at casual employment. Therefore, any casual work needs to be either long term or in an essential services industry such as food.
- Thirdly, lenders are confirming employment before settlement. As a result, they want clients to prove the income is ongoing before providing any funds.
In summary, lenders have made some sweeping changes. Also, as a result of these changes, you may find that you don't meet the criteria of the banks. Therefore, it is essential to act with caution when dealing with banks. Hence, if you gain approval for finance don't count your chickens before they hatch; or the funds are in your bank.
Lending and the risks with buying property
Property purchasing risks have always been there. However, COVID policy changes have meant that lenders will also confirm application details prior to a loan settlement. Obviously, this puts any property purchase at risk.
Property purchase contracts with finance clause become unconditional as a result of approval for finance. However, if your contract is unconditional, then lose your job; the risk of finance falling over is high. Indeed, you would be in an open contract without an ability to secure finance. Consequently, you could potentially have your contract rescinded and lose your purchase deposit.
Loan Saver Network offers specialist advice with business loans as well as a wide range of other specialist loans. Therefore, if you have issues with lending, call us on 1300 796 850 to discuss your finance requirements.