A cursory examination of the industrial properties in Singapore, whether its warehouses, factories or workshops, will reveal steep prices, which is not all surprising given the land scarcity and the island state’s position as one of the most vibrant economic hubs in the region.
Because of this, businesses often require loans to secure industrial property. However, surveys have found that up to 86% of SMEs in Singapore have found it difficult to obtain financing in recent years.
The challenges for SMEs obtaining industrial property loans are manifold. However, with the right set of actions, companies can improve the possibility of loan approvals. Here are the top 6 challenges for industrial property loans and the steps businesses can take to overcome them.
Although the basic requirements differ from one lender to another, financial institutions in general place several basic conditions on all their SME borrowers in order to be considered for a loan. These basic criteria are usually in place for conventional lenders like banks:
Private lenders may also adopt these criteria, but enforce them to a less stringent degree.
Steps to Take: For companies who have not been incorporated long enough, waiting for the necessary period to elapse would be the usual option. Alternatively, companies may consider making applications to alternative lenders instead, who will likely be more flexible in the eligibility of their borrowers.
As part of your industrial property loan, lenders will have to consider Notice of Assessment and latest Credit Bureau Singapore report for all your company directors. This provides lenders with a clearer picture of their financial conditions, which are indirectly a reflection of your company’s financial health.
Proof of steady income and a healthy credit record on the part of company directors can improve your company’s standing in the eyes of the lenders. They will be more likely to view your application favourably should they prove to be responsible borrowers.
Steps to Take: Company directors should attempt to improve their creditworthiness by making timely payments on their outstanding debts and bills, including any personal loans, credit cards and bills they may have.
Lenders often require businesses to submit a two year financial statement and about half a year to one year’s bank statements. These documents shed light on the performance of your business, and therefore also your financial capabilities in paying back the industrial property loan.
If your financial records leave much to be desired, especially in the past year, you may face greater challenges in obtaining an approval.
Steps to Take: Although the standards for revenue performance differs from one institution to another, the lenders generally show a preference for businesses with stable or growing income. It is therefore apt for business owners to work on strategies for improving their business’ financial performance before applying for industrial property loans.
Industrial property mortgages tend to have shorter tenors (a maximum of 25-30 years) as compared to housing loans (30 to 35 years). These loans also tend to incur a higher interest rate, due to the fact that they are more difficult to liquidate compared to residences. Both these factors mean that obtaining a commercial loan is more costly than a housing loan.
Steps to Take: There are, in general, two things you can do to obtain the best possible terms and conditions for your loan. The first is to compare loan providers, and Lendingpot is the perfect platform to do this. With multiple loan providers, you will be able to compare both interest rates and loan tenors so that the monthly installments align with your affordability.
Industrial property loans generally allow you a loan-to-value (LTV) ratio of 60-70%, which is lower than commercial property loans. However, this still means you have to source for at least 30-40% of the value of commercial property as a down payment. For small businesses, this can be a challenge, not to mention the fact that company directors are unable to use their CPF savings to pay down payments for industrial properties.
Steps to Take: We recommend exploring government assistance programmes for partial funding, considering a bridging loan, or using personal savings. In addition to this, platforms like Lendingpot can secure better financing terms.
Unlike home financing, where the transaction is based on the current value of the property, commercial real estate financing considers the projected value of the business or property. Lenders require a clear understanding of the potential of the property to generate returns before they will consider investing in the purchase.
Borrowers are therefore required to provide detailed business plans, revenue forecasts, and feasibility studies, which can be difficult for startups or businesses without a strong financial track record. Can also lead to stricter terms or higher interest rates due to the uncertainty of future returns.
Steps to Take: Ensure that your company prepares a complete and thorough report regarding the property you intend to buy, including its anticipated use, projected returns, location, surroundings and perceived risks. You may have to consult an expert in this regard.
Businesses seeking financing in order to own industrial property loans can always take advantage of platforms like Lendingpot. With more than 45 lenders on our platform, you can save time and resources which could otherwise be more productively utilised on growing and maintaining your business. Register with ease using your Singpass business Myinfo and begin receiving competitive industrial property loan offers from our partners.
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.
