Most SMEs in Singapore rent or buy property to expand their business. Buying commercial property in Singapore requires financing. You can approach your bank for a commercial property loan, which can be a fixed-interest or floating-interest loan. With a fixed-interest loan, you will have the loan for a fixed interest rate for a few years, and then, it fluctuates. The floating interest rate varies during the loan period depending on the market conditions.
You can find several leading banks in Singapore offering a business property loan in a fixed-rate package or fixed instalments for the first two years to save you from any interest rate fluctuations. The other option is to choose a SORA-pegged package with a “three-month compounded SORA rate as published by the Monetary Authority of Singapore”.
To find a commercial property loan for your business, you need to consider some essential points. They are:
1. Are you eligible?
As an SME, you should be established in Singapore and doing business for a minimum of 12-24 months. Further, at least 30 percent of the company should be owned by Singapore citizens or permanent residents. The turnover of the company should be 20 million SGD or less than that amount.
You can have the business property loan from your bank, or with any other leading bank like DBS, which will have access to your business details if you apply through MyInfo Business or ACRA. In such a case, you don’t have to give any financial documents. Nevertheless, the bank may require you to provide additional details on:
- location, floor size, and tenure of the property
- Price of property
- Option to buy, if available
- Financial statements for the last 2 years
- Bank statements for the last 3 months
You don’t have to give these details if you have your main bank accounts with DBS.
2. Loan-to-value ratio
Most banks offer up to 80 percent of the property value or price. Nonetheless, the loan amount sanctioned depends on your bank’s assessment, which includes your credit standing and capability to repay the loan amount.
3. Duration of the loan
The duration of a loan is important, and you need to think about how long you want to service the loan. Generally, the banks in Singapore offer a loan tenure of 25 to 30 years. It is up to you to know your affordability and decide the repayment period. By using the commercial property loan calculator, you can arrive at the estimated monthly repayment amount and the total repayment amount based on the tenure and interest rate. You can decide whether you want to have a long-term repayment period or reduce it to repay it quickly. The interest rates change when the tenure period increases or decreases.
4. Additional costs
There are extra costs like valuation fees and legal charges involved when buying a business property. However, some banks like DBS offer subsidies in legal and valuation fees, which will help you save considerably. Commercial property loans have a lock-in period of 2 or 3 years, and if you want to refinance or sell your property during this period, you will have to incur some charges in the form of a penalty fee. You also have to pay property tax annually after the purchase of the property.
Getting a commercial property loan from a bank will help you get some perks like SORA-pegged or fixed loan packages and subsidies on the valuation and legal fees to maximize savings.
If you have a property shortlisted, you can apply for a commercial property loan online, providing your unique UEN or registered business name.