Complete Guide To Commercial Property Loans For Singapore Businesses

Businesses can either rent or buy a property that they want to operate out of. For most, the answer will be to rent – as it offers less commitment and more flexibility to relocate. For a smaller group of businesses, buying a commercial property can make sense – you effectively pay yourself the rent and own the property after some years.

If you are considering a commercial property investment, you should also understand the inner workings of taking a commercial property loan in Singapore. Before taking a commercial property loan, there are 8 things should need to know first.

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

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

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 good standing with the bank, i.e. you have strong cash flow, a track record of paying existing loan facilities on time and already communicating with a relationship manager, you may get a preferential rate with the bank.

Read Also: [2024 Edition] 5 Best Business Bank Accounts In Singapore For New Business Owners

#2 Are You Eligible For A Commercial Property Loan In Singapore

Most banks will require your business to be incorporated locally and have been in operation 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.

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

#3 How Much Can You Borrow When Buying A Commercial Property (Loan-to-Value (LTV) otio)

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 (and fund the entire commercial property purchase) with other loan facilities that the bank can offer you.

#4 Other Loan Facilities For Your Commercial Property Purchase

When you invest in a commercial property, you can usually also add on a term loan or an overdraft facility. In certain instances, you can get funding in excess of 100% of the property value from these complementary loan facilities. Of course, interest rates will vary (read higher) from the main commercial property loan. 

In addition, 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: [2024 Edition] Complete Guide To SME Business Loans In Singapore

#5 What Is Your Loan Tenure?

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. The longer your loan tenure, the more you will ultimately fork 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 loans you can take. Of course, this is because it can extend over such a long timeframe.

Currently, many commercial property loans in Singapore offer a flexible SORA-pegged package. As its name describes, a flexible rate package can vary according to interest rates fluctuations.

While fixed rate packages tend to offer more certainty for businesses, many have been phased out due to the rapid increase in interest rates over the past 2 years. You should also be prepared to pay a higher interest rate than flexible rate package to mitigate the risk of interest rate fluctuations for the bank.

If you choose to prepay or sell your property within this timeframe, there will likely be penalties invovled.

Besides SORA, flexible rate commercial property loans can also be pegged to other interest rate benchmarks such as 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 in 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 comparable residential property loans. When taking a commercial property loan, you may 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 buying your commercial property, 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 Sign-Up Perks For Commercial Property Loan

From time to time, certain banks may also offer additional perks when you sign up for a commercial property loan with them. You should speak to your bank relationship manager or get in touch with a bank to learn more.

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)

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

Need Financing Support During This Period?

Enjoy fast access to funds and receive your loan approval status instantly when you apply online with OCBC.

For SMEs that are just six months into operations, secure up to S$100,000 with the OCBC Business First Loan . If your SME is above two years old, secure up to S$700,000 with the OCBC Business Term Loan – good for funding business operations or expansion. Terms and conditions apply.

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