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Understanding First, Second, and Caveat Loans in Private Lending

Updated: Nov 30, 2023

In private lending, borrowers can access various loan options that provide flexibility and quick funding investing. One such option is the innovative and reliable non-bank lender Innovate Funding. Innovate Funding specialises in non-bank loans, offering private funding solutions to borrowers who may not qualify for traditional bank loans. With their expertise in funding financing and personalised approach, Innovate Funding can help borrowers find the right alternative funding solution tailored to their unique financial funding needs.

commercial building with Innovate Funding

What is Private Lending?

Private lending refers to a financing avenue where borrowers receive funds from private entities, such as Innovate Funding, instead of traditional financial institutions like banks. These non-bank lenders focus on the value of the property being used as collateral and the overall potential of the deal rather than relying heavily on the borrower's credit score or income history. This makes private funding an attractive option for borrowers who may need to meet the stringent requirements of traditional finance funding providers.

First Loans: The Primary Financing Option

First loans, or first mortgages or first liens, are the primary funding financing option in private lending. These loans hold the first position in the hierarchy of liens on a property, meaning they have the highest priority in terms of repayment in case of default. First loans are typically offered at lower interest rates than subsequent loans, making them an attractive choice for borrowers seeking finance funding.

Characteristics of First Loans

  • Lowest Risk: First loans carry the lowest risk for lenders, as they have the first claim on the property's value in case of default.

  • Lower Interest Rates: Due to their priority position, first loans usually come with lower interest rates, making them more affordable for borrowers.

  • Higher Loan Amounts: Borrowers can typically secure higher loan amounts with first loans, as lenders have more confidence in the primary position of their lien.

Second Loans: Supplemental Financing

Second loans, or second mortgages or second liens, are secondary funding financing options in private lending. These loans are subordinate to first loans and hold a lower priority regarding repayment. Second loans are often used to supplement the funds obtained from a first loan or to tap into the equity of a property for various purposes, such as home renovations or debt consolidation.

Characteristics of Second Loans

  • Higher Risk: Second loans carry a higher risk for lenders, as their position is subordinate to first loans. In case of default, the proceeds from the property sale will first be used to repay the first loan.

  • Higher Interest Rates: Interest rates on second loans are generally higher than those on first.

  • Lower Loan Amounts: Lenders may offer lower loan amounts for second loans, as they have a secondary claim on the property's value.

Caveat Loans: Unique Financing Arrangements

Caveat loans, also known as caveat mortgages, are a type of funding financing arrangement in private lending. These loans are secured by the borrower granting an interest in their real estate property to the lender, usually in a charge or mortgage. The lender can register a caveat on the property's title, providing notice of their interest and preventing the owner from dealing with the property without the lender's consent. This makes it a suitable option for real estate investors.

Characteristics of Caveat Loans

  • Speed and Flexibility: Caveat loans offer a practical and rapid mechanism for lenders to protect their interests without consulting third parties. These loans are ideal for borrowers in urgent situations who require quick funds to complete settlements or progress with developments.

  • Higher Risk and Interest Rates: Caveat lenders are often willing to lend based on higher risk and provide loans with higher loan-to-value ratios (LVR). In exchange for assuming higher risk, lenders charge higher interest rates and fees.

  • Lack of Priority: Unlike first and second loans, caveat loans do not provide priority for the lender. A caveat serves as a notice to others of the lender's interest in the property, but it does not grant the lender any rights over the land. To enforce their rights, lenders may need to register a mortgage or obtain a court order.

Choosing the Right Private Lending Solution with Innovate Funding

Navigating the landscape of private lending requires partnering with a non-bank lender attuned to your distinct financial funding requirements. Innovate Funding offers non-bank loan options for those who might need to meet the criteria for conventional bank financing. We offer tailored services and proficiency in private funding, positioning us as a dependable ally in securing the appropriate alternative funding solution.

Benefits of Choosing Innovate Funding

  • Flexibility: Innovate Funding offers flexible loan terms tailored to each borrower's needs and circumstances. They understand the complexities of private lending and work closely with borrowers to find the best solution.

  • Quick Approval Process: Innovate Funding values the urgency of borrowers' financial requirements. Their streamlined approval process ensures that borrowers receive the funds they need promptly.

  • Competitive Interest Rates: Innovate Funding provides competitive interest rates for their non-bank loans, ensuring that borrowers can access the necessary funds at affordable terms.

  • Expertise and Support: With their extensive experience in private lending, Innovate Funding offers expert guidance and support throughout the loan process. Borrowers can rely on their knowledge and expertise to navigate the complexities of private lending.


Private lending, with Innovate Funding as a trusted non-bank lender, offers borrowers flexible finance and efficient funding financing options. First loans provide primary financing with lower interest rates and higher loan amounts, while second loans supplement funds obtained from first loans. Caveat loans offer unique financing arrangements, providing speed and flexibility but without priority for the lender. By choosing Innovate Funding, borrowers can access the right non-bank lending solution tailored to their needs. With their expertise and personalised approach, Innovate Funding is committed to helping borrowers achieve their financial funding goals in the private lending landscape.


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