[2022 Edition] Complete Guide To Commercial Property Loans For Singapore Businesses

Complete Guide To Commercial Property Loans For Singapore Businesses

When getting a location for your company to operate out of, businesses can either rent or buy. For most, the answer will be to rent. For a smaller group of businesses, buying a commercial property can make sense – and you need to understand the inner workings of taking a commercial property loan in Singapore.

When you want to get a commercial property loan, you should consider these 8 things first.

#1 Which Bank To Take Your Commercial Property Loan With?

Most businesses would already have an existing business banking relationship with one of the banks in Singapore. Taking your commercial property loan with the same bank can make sense and make it more convenient.

For starters, this will likely reduce your documentation requirements, as the bank would have access to your business banking details – and by extension, your cashflow and financing situation.

If you have a solid standing with the bank, i.e. you have strong and steady cash flow, existing loan facilities that you are paying on time and already communicating with a relationship manager, you may be able to get a better interest rate with the bank.

Read Also: [2022 Edition] 5 Best Business Bank Accounts In Singapore For New Business Owners

#2 Eligibility Criteria For Commercial Property Loans In Singapore

As a small business, most banks will require you to be incorporated locally for around 12 to 24 months. To be eligible for a commercial property loan, businesses must also be at least 30% owned by Singaporeans/PRs. The company’s turnover is also limited to $20 million or less.

If you are business that has a smaller local ownership structure or turnover more than $20 million, you can still take out loan with the bank, but your commercial property loan is not classified under SME banking anymore.

#3 Loan-to-Value (LTV) Ratio For Your Commercial Property

In general, most banks in Singapore will extend 80% to 90% of your property purchase price or valuation.

Unlike taking a commercial property loan as an individual, your business is not restricted to any Total Debt Servicing Ratio (TDSR) requirements. However, your credit standing can affect how much loan banks may be willing to extend to you.

You can technically lower your out-of-pocket with cashflow from other loan facilities that the banks are more than happy to offer.

#4 Other Loan Facilities For Your Commercial Property Purchase

When businesses purchase a commercial property, you can usually also add on a term loan or an overdraft facility. In certain instances, you can get more than 100% of the property value from these complementary loan facilities. Of course, interest rates will be different (read higher) to the main commercial property loan you take out. 

In additiona, you can also use trade facilities such as Invoice Financing (Sales) or Accounts Receivables Purchase to raise cash by turning your receivables into upfront cash. This can help form all or part of your downpayment on the commercial property.

Read Also: [2021 Edition] Complete Guide To SME Business Loans In Singapore

#5 Loan Duration

Similar to buying a property as an individual, you also have to consider how long you want to service your commercial property loan. Many banks in Singapore offer a repayment period of between 25 to 30 years for your commercial property loan.

However, you need to consider whether you want to take such a long-term commercial property loan. Of course, the longer your loan tenure, the more you will ultimately be forking out in interest charges.

You can also stretch out your repayment period beyond 30 years by subsequently taking cash out refinancing loans after accumulating sufficient principal repayment (equity) in your commercial property.

#6 Types Of Commercial Property Loan

While most business loans are fixed, a commercial property loan is one of the few variable-rate loan. Of course, this is because it can extend over such a long timeframe.

When choosing a commercial property loan, you can also decide whether you want to take  a fixed package or a flexible package. For either type of commercial property loan, you will be locked-in for about 2 to 3 years. If you choose to prepay or sell your property within this timeframe, there will likely be penalties invovled.

Fixed packages tend to offer more certainty for businesses, with a known cash outflow for the next 2 to 3 years. Variable package tend to start off slightly cheaper, but can vary according to how interest rates fluctuate.

The commercial property loans can be pegged to interest rate benchmarks such as SIBOR, SORA or internal board rates. You need to speak to the individual banks to learn more.

The interest rates offered by banks in Singapore are also not transparent and openly provided on their websites. Unfortunately, you will have to contact the banks separately for a quote.

#7 Additional Costs You Need To Be Aware Of

When buying a commercial property, there’s going to be costs involved. This may include agent commissions, time and effort finding the right commercial property to buy, as well as legal fees and valuation fees. Depending on the bank you take your commercial property loan with, you may get a subsidy on your legal fees and valuation fees.

You should also note that most commercial property loans are slightly more expensive than a comparable residential property loan. When taking a commercial property loan, you would typically be locked-in for 2 to 3 years. If you choose to prepay or sell the property within this time, you will likely incur a penalty fee of around 1.5%.

After the purchase, you may not have to pay rent or you may be collecting rent, however, there will be ongoing costs. This includes income tax if the property is rented out or partially rented out. You will also have to pay 10% of your property’s annual value in property tax each year. Typically, there is also going to be a maintenance fee you have to pay for your property.

Read Also: Guide To Buying A Commercial Property For Your Business In Singapore

#8 Additional Perks

From time to time, certain banks may also offer additional perks when you sign up for a commercial property loan with them.

Many banks also offer subsidies on your legal and valuation fees.

Taking A Commercial Property Loan In Singapore

For most banks, you can simply submit your application for a commercial property loan online. When signing up for the loan, if you have your ACRA or MyInfo Business login details, it should smoothen the process.

Typically, you should have shortlisted the property you want to purchase when submitting your application. To speed up the provision of the conditional offer, have the information for the property your want to buy on hand: 

  • Address
  • floor size
  • valuation/property price

When applying for the commercial property loan, you should also have the following documents (especially if you are applying with a different bank from your business banking) for the last 2 years:

  • your financial statements
  • bank statements
  • income tax Notices of Assessment of guarantor(s)
  • NRIC of guarantor(s)

Read Also: 5 Reasons SMEs Should Consider A Temporary Bridging Loan, Even If You Don’t Need The Money

This article was originally published on 2 August 2021 and has been updated with new information.

Need Financing Support During This Period?

SMEs can enjoy extra financing support of up to $1 million through the Temporary Bridging Loan Programme when you apply online with OCBC. Terms and conditions apply.

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