Commercial properties continue to be a viable investment for business owners and entrepreneurs. Data has shown that commercial real estate, especially office buildings and retail lots have enjoyed a resurgence in demand after pandemic. This is due in no small part to many businesses requiring a return to the office, as well as a steady increase in retail consumption.
This healthy growth is a boon for businesses who wish to invest in commercial property to generate income through leasing or expanding their operations.
Owning commercial properties, however, involves a long list of considerations, one of them being, whether to finance them under your personal or business name.
There is no simple answer to the question of whether obtaining financing is easier as an individual or company. We shall, however, examine the key differences between these two options, to determine the best choice for your unique situation..
There is a difference between LTV ratios should you apply for a commercial property loan under your personal name vs using your company name. For starters, very few banks and financial institutions offer financing for commercial properties under an individual's personal name. When it is offered however, LTV ratios are relatively lower, peaking at 75-80% of the property value.
In contrast, LTV ratios for companies applying for commercial property loans are significantly higher, peaking at 90%. If the company proves to have very good creditworthiness, no significant liabilities and a steady or growing income, they may even enjoy an LTV ratio of up to 120% the property value if the bank decides to grant additional trade lines on top of a term facility. This high financing value helps companies cover legal and administrative fees involved in the purchase process, as well as any renovations or upgrades they have planned.
The verdict: Applying as a company is better as you can enjoy a higher LTV ratio up to 120%, whereas few banks offer commercial property loans to individuals, and those who do offer significantly lower LTV ratios.
The age and income of an individual applicant for property financing is an important factor in determining loan tenor. For individuals, the maximum loan tenor is 35 years for non-HDB properties, or until the borrower reaches the age of 75, whichever comes first. If there is more than one borrower using their personal name, then the property loan uses a principle called the Income Weighted Average Age (IWAA), where the older borrower with the higher income will skew the average age of all borrowers, making tenors shorter.
Commercial property loans applied under companies will not be subjected to this system. Instead, the age of the youngest borrower (or company director) will be the deciding factor in tenors, allowing the possibility of a longer tenor and therefore lower monthly repayments.
The verdict: Here’s yet another win for applying under your company name, as the youngest borrower determines the repayment tenor, maximising tenor lengths
Should you choose to apply for a commercial property loan as an individual, you will be subjected to strict regulations by the Monetary Authority of Singapore (MAS) with regards to your TDSR, which is the ratio of all your current debts measured against your total income. For individual borrowers, this cannot exceed 55%, which means your total monthly debt repayments is capped at 55% of your income.
Companies applying for financing, on the other hand, are not subjected to TDSR requirements. Instead, their EBITDA (a measure of your company’s profitability) should be 1.0x the annual debt obligations. This means that your company’s profits should be on par with your total liabilities.
The verdict: We call it a tie here, as both company and individual TDSR requirements to obtain commercial property loans may present a challenge to borrowers.
In terms of ease of process, it is true that applying for a property loan under your personal name requires less documentation, whereas applying as a company requires submission of more records.
However, getting approval or favourable loan terms is not necessarily easier as a company or an individual. It depends very much on factors such as your individual or company’s credit score, income, assets, current liabilities or debts, and several other factors.
The verdict: Applying as an individual requires less paperwork, but approvals still depend on your creditworthiness, whether individual or company. We therefore give this a tie.
Find your next commercial property loan here on Lendingpot, which is home to more than 45 business lending partners. Sign up efficiently with your Singpass Myinfo Business account and receive loan offers directly from our partners.
Should you need further advice regarding your commercial property loan and would like our experts to assess your suitability as a borrower (whether under your personal name or business name) do contact us and our consultants will be glad to assist.
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.
