This is not a substitute for legal advice. If you are thinking about a secured loan, we always recommend getting independent advice.
If you’ve ever tried to get a secured business loan in New Zealand, you’ll know it’s not always easy to get money through the banks, no matter how loyal you are and how many accounts you have with them. Banks usually want detailed financial statements, plenty of history, and lots of time to process an application. They’re very risk-averse, which is why they are the cheapest source of business loans. But that risk averseness can be a real barrier when you need cash quickly to grab a business opportunity or manage cashflow. And if you’ve got IRD arrears, your chances of securing funding, even with plenty of equity in your home, are extremely low (see my other blog post about that here.
If you’re not afraid of putting your property up as security, this is where non-bank and second-tier finance companies come in. They’re generally faster and more flexible and there are plenty out there that are happy to lend against your house. And that’s where it’s important to understand the difference between a registered mortgage and a caveat. Both are used to secure business lending, but they work quite differently and have very different implications if something goes wrong.
what is a secured business loan?
A secured business loan is a type of finance where the borrower (you) offers an asset — usually property — as collateral. If the business can’t repay the loan, the lender can use that asset to recover the money owed.
Secured loans often come with lower interest rates and larger loan amounts, because they reduce the lender’s risk. The trade-off is that the your property is on the line if you default.
what is a registered mortgage?
A registered mortgage is the most formal type of property security. It’s registered on the property title with Land Information New Zealand (LINZ), showing that the lender has a legal interest in the property.
From the lender’s point of view, this provides strong protection. You can’t sell, refinance, or transfer ownership of the property without their consent. And if the loan isn’t repaid, the lender has the right to take possession and sell the property to recover the debt.
Because of these strong rights, registered mortgages are typically used for larger or longer-term secured business loans. They require more documentation and due diligence, but they also provide lenders with greater confidence — which can make it easier to borrow bigger amounts.
what is a caveat?
A caveat is a different kind of security notice. Instead of giving the lender full rights to your property, a caveat acts as a warning on the title that someone else (the caveator) has an interest in your property.
When a caveat is lodged, it effectively blocks the property owner from selling or further mortgaging the property until the caveat is lifted or resolved. This makes it a popular option for short-term business loans where speed is crucial and setting up a full mortgage would take too long.
However, a caveat doesn’t allow the lender to automatically sell the property if you default. To get their money back, they would need to apply to the court — a process that’s slower and less certain than enforcing a mortgage. If things are looking dicey, they may contact you about registering a mortgage before things get really bad, which is an indicator to you that you need to act quickly to get your loan repayments back on track, or refinance your loan.
registered mortgage v caveat, the main differences
WHAT HAPPENS IF YOU DEFAULT ON A SECURED BUSINESS LOAN?
If your loan is secured by a registered mortgage, the lender can move fairly quickly to enforce it. They’ll issue a demand for repayment, and if that’s not met, they can proceed with a mortgagee sale. The property is sold, the lender gets their money back, and any surplus funds go to you.
If the loan is secured by a caveat, it’s a different story. The lender can stop you from selling or refinancing the property, but they can’t simply sell it themselves. They’d need to apply to the court for a charging order or other enforcement method. This makes caveats less powerful but also less intrusive than mortgages.
WHICH OPTION IS RIGHT FOR YOUR BUSINESS?
We can’t tell you what is right for your business, and our advice if you are thinking about secured borrowing is to get advice first. But if you’re exploring property-backed business finance, the right type of security depends on your situation, and may ultimately be dictated to you by your lender:
Registered mortgages are usually for long-term borrowing or larger loan amounts where the lender needs stronger protection.
Caveats work well for smaller, short-term, or bridging loans where speed and flexibility are the priority.
FINAL THOUGHTS
Understanding the difference between a registered mortgage and a caveat is crucial before you agree to any secured business loan in New Zealand. Both can be effective tools for accessing funding, but they carry very different rights and obligations for you and your lender.
Before signing anything, always get independent legal and financial advice. Knowing exactly what you’re agreeing to will protect both your property and your business down the line.
And if you need a secured business loan and the bank has said no, we have a range of lenders that will be happy to look at your application. Contact us to find out more.