Business Loans

Commercial Property Loan Requirements You Need to Know

Lina Tay
November 29, 2022

Commercial Property Loan Requirements You Need to Know

Applying for a commercial property loan is quite different from a residential loan. Commercial property loans are usually made to business entities as opposed to individual borrowers, necessitating a host of different procedures and requirements. In this article, we’ll be sharing some general commercial property loan requirements you need to know. 

What are Commercial Property Loans?

Before we dive into the commercial property loan requirements, let’s start by defining the term. Commercial property loans are a type of loan taken by businesses to finance the purchase of a commercial property. 

Much like residential loans, they generally fall under two categories: fixed-interest loans and floating-interest loans. Fixed-interest loans are characterised by a static interest rate that stays locked for several years before converting to a floating rate. Floating rates, meanwhile, have interest rates that fluctuate from the start of the loan term - which means payment will vary from month to month. 

Commercial loan products differ across financial institutions. To make it simple for businesses applying for a commercial property loan, we’ll provide some general requirements, considerations that financial institutions take into account when choosing when to provide a loan, and factors that shape how you receive a loan. 

General Documents Needed for Commercial Property Loan

When applying for a commercial property loan, depending on the institution you choose to apply to, some of the documents you’ll need include: 

  • An application form (signed and filled by all relevant parties)
  • A copy of NRIC
  • Income documents, including income tax notice of assessment (NOA), bank statements, payslips e.t.c
  • Option to purchase 
  • Loan statements from existing banks
  • Tenancy agreement (if applicable)

State of Finances

The state of your company’s finances, as well as the personal finances of the partners of the company, will play a critical role in whether financial institutions approve a commercial property loan. 

Financial institutions will use total debt servicing rules (TDSR) to determine whether an individual can repay a loan and for companies, their net profit over the last 2 years amongst other factors

A clean bill of financial health, that is to say, no defaults, foreclosures, court judgements, and so forth, will increase the chances of your business securing a loan.

Beyond the financial position of the company and its directors, it pays to clearly outline your business plan with financial projections, estimated costs, property valuations, financial histories, and other information that articulates your prospects. This demonstrates a seriousness towards your venture. 

Eligibility Criteria for Commercial Property Loans

Eligibility criteria for commercial property loans also vary across financial institutions. The majority of banks will require that a business be incorporated locally for 12 - 24 months. Furthermore, the business applying needs to have at least 30% of the company owned by Singaporeans or PR holders. Company turnover of more than $20 million will be subject to additional credit assessment as it would fall within the commercial banking customer bracket. These include audited financial statements, projections and detailed business plans. 

Key Considerations for Commercial Property Loans

When assessing a business for a commercial property loan, financial institutions tend to base the transaction on the future value of the business, unlike in home financing loans, where it’s based on the value of the home at the time of purchase. 

In addition, to the future value of the business, financial institutions also base the loan on

  • How the property will be used. 
  • Expected returns from the property
  • Geography 
  • Type of real estate
  • Size of the real estate
  • Risk to the lender 
  • Condition of the market

The conditions of a loan will vary across different financial institutions. 

Factors That Shape a Commercial Property Loan

Loan to Value Limits for Commercial Property Loans

In Singapore, for residential loans, you can get up to 80% of your property’s purchase price as an HDB loan and 75% for bank loans. And you’ll also be subject to Total Debt Servicing Rules (TDSR).

With commercial loans, you can get up to 80% of your property’s value as a loan, sometimes even up to 90%. Your financial standing will largely determine the size of a loan that financial institutions are willing to extend. It is also worth noting that businesses are not subject to TDSR. 

Loan Tenure for Commercial Property Loans

Loan tenures for residential properties are capped at 30 years for HDB flats and 35 for non-HDB properties. Commercial property loans, however, tend to have shorter loan tenures, ranging between 25-30 years. Needless to say, commercial property loans with longer loan tenures will be more expensive to pay in the long term. 

Additional Buyers Stamp Duty

Buyers Stamp Duty (BSD) is a tax levied on all purchases in Singapore, whether it be HDB flats, non-HDB flats, or commercial property. Additional Buyer’s Stamp Duty (ABSD) is another tax that buyers have to pay when purchasing a property. However, it only applies to existing Singaporean citizens who already own existing property, as well as permanent residents or foreigners buying any property. ABSD, however, is not charged on commercial property. 

Final Thoughts

In summary, acquiring a commercial loan will require proper documentation, solid financials, and a clear business plan to guarantee any level of success. At Lendingpot, we’ve made it our mission to realise the best outcomes for businesses applying for loan products. If a bank loan is still not suitable, try a non-bank alternative as outlined by our property backed financing guide. 

Our platform is home to 45 lenders, all vying to offer the best loans. If that’s not enough, we prepared information to help guide your decisions, as well as specialists onboard if you need help brokering a deal. If you wish to apply for a commercial property loan, register for an account and start your application for free. 

Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.

About the author

Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.

Commercial Property
business loan
SME Loan

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