Getting a commercial property loan: What you need to know
Planning to buy a commercial property as an individual? Or if your business is looking at purchasing a commercial or residential property in Singapore, you’ll probably need a commercial property loan.
1. Your company’s finances should be sound
Banks will need to ensure your company’s finances are sound enough to repay the loan. Banks usually calculate your company’s total debt servicing ratio (TDSR), which is your company’s annual net operating income divided by its total annual debt burden. If your company is in the red, or if cash flow is insufficient to service payment, TDSR will also apply to individual directors’ incomes. In general, the stronger your company’s financials, the better your chances of securing a commercial property loan.
2. Your personal finances matter, too
Because SMEs are usually run by one or several partners, banks will usually check the personal credit ratings and history of your company’s partners as part of the loan approval process. A clean history of no defaults, foreclosures, court judgments and the like could give your company a better shot at securing a commercial property loan.
3. The kind of property you’re looking at is important
The property you intend to finance with the loan acts as collateral that the bank can seize if you don’t repay your loan on time. During the application process, banks are likely to look at several factors, such as what the property will be used for; projected returns from the property; location; property size and type; as well as prevailing market conditions. Before taking on a loan, you should examine each of these areas carefully, and choose a loan that best meets your needs.
4. Refinance only if it’s worth your while
Refinancing is an opportunity for your company to pay less every month in mortgage repayments, or even borrow more money against your property. However, it’s important to look closer at several factors before you refinance. For example, how has the valuation on your property changed since you took on your earlier loan? Have there been changes in your company’s credit situation, and are there claw-back or lock-in conditions on your existing loan that might make refinancing untenable?
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