Commercial Property Loan

Call: +65 8336 3133 or Email

Affordable rates and flexible terms
Fast Approval

No registration,
early repayment or hidden fees

The computation above is for indicative purposes only. The Bank accepts no liability for errors or omissions, nor for any loss arising from use of or reliance on the calculation herein.

Covid-19 Resources

3 ways your business property can get you additional cash flow

Digital solution to help SMEs tide through COVID-19

Faster Application Online

Our online application process has been improved to be fast, simple and secure with MyInfo Business. Enjoy less hassle as the form gets pre-filled and there are less documents to submit.

In short, a building loan is being used to finance the construction of a new structure or for an extensive renovation of an existing building. It should be noted, however, that commercial building loans work much differently than standard mortgages. In this context, this article will cover what a building loan is, how it functions, and the different types of commercial building loans available. Continue to read for more.

As the name suggests, a construction loan represents a specific loan for financing a construction project or a new house. These funds are generally used to acquire and develop new land to cover the materials and labor expenses involved in constructing or renovating the existing building.

Often, building costs for a new structure can be expensive from the ground up. Indeed, if you look to build a commercial system like an office or building for an apartment, this cost can add up to 100,000 dollars, if not millions. With few firms having this type of cash flow at hand, building loans are used to provide firms with the funds to build these structures from scratch.

A trade loan is an arrangement for debt-based finance between a company and a financial institution like a bank. It is typically used to finance major capital expenses and cover operating costs which the company may fail to afford otherwise. Costly initial costs and regulatory obstacles often prevent small firms from directly accessing bond and equity markets. This means that smaller businesses have to rely on, not unlike individual consumers, other lending products, such as credit lines, unsecured loans, or term loans.

If you wonder why you should obtain a building loan in place of HELOC or some other privatized loan, some of its benefits are as follows:

Flexible Terms

While banks will require you to submit specific plans for your project, building loans will be much more flexible than conventional loans with their terms and guidelines.

This enables you to work your loan terms to some extent according to your project requirements.

Pay Only the Interest During Construction

The Bank will not ask you until then to start the principal because you don’t have to pay the loan fully until the new construction is finished.

You only pay interest on your loan when you build your house – it gives you less monthly obligation and more time to save.

Transition to a Permanent Loan

Over the years, construction loans have changed to bring many benefits to borrowers. One of them is the benefit they can gain from using permanent loans for construction.

As mentioned earlier, this kind of loan will give the money a builder has to build his house and give him the time to repay it. Once the construction has been completed, the loan transfers to a loan similar to a mortgage.

This is especially helpful for builders who cannot raise enough funding to repay loans within the short term of the loan.

The borrower can also benefit from having the interest rate of the loan negotiated and locked.

Additional Scrutiny

The lender requires a closer look at how you plan to carry out your project if you accept that kind of loan. This is good for you because an independent party will examine your plans for whether everything is acceptable. This will require you to send the Bank a clear construction schedule and details of your building plan.

To make this available, your contractors must inform you of the dates, methods, materials, workers they employ for the actual construction period, etc.

It can help you get the work done following the schedule and budget, mainly if your budget is spent personally.

The Freedom to Choose

Perhaps this is one of the areas of the promising field for your home building – you’ll have the opportunity to create your family’s dream. Most homes on the market are prefabricated, and buyers are looking for something they want to “close enough.”

You have the freedom to choose your architect and contractor to work with them to customize your home to suit all your needs and needs when you qualify for a building loan.

Disadvantages of a Construction Loan

There is never a perfect financial product, as building loans have their very own drawbacks. Some of them are here:

Minimum Requirements

A building loan may sound more straightforward, but it is not specific to qualify for one. Since building lending is very flexible, lenders impose higher standards for credit scores and down payments.

A borrower must generally receive a minimum of 680 and be allowed to make a down payment of at least 20%. In addition, before you agree to give you money, your Bank will also ask you to submit various documents regarding your property and other necessary supporting documents.

Higher Monthly Payments 

 When you first get your loan, your loan term starts, whether 20, 25, or 30. You will have to make interest payments for the first few months or years as the construction goes on.

However, the lender will include many months in calculating your monthly loan payments when the time comes to start paying off the loan. To make sure that your monthly fees increase, you don’t have to be a mathematical genius!

Partially Loan Payments

 If your lender does not agree to take the loan at once, you may receive your loan in sprints based on your development. Note that you have to pay interest on your loan while your house is under construction.

Remember that building loan interest rates are usually higher than the standard mortgage rates, so make sure to include this in budget preparation.

High Interest

 Building loans typically have variable interest rates, and lenders add a certain percentage over their prime rate or their best customers rate.

For example, if the prime rate is 4.5% and the lender decides to have a high loan rate plus 2% for your buildings, you will receive an interest rate of 6.5%.

Cost May Be Higher Than Expected

 Building loans typically have variable interest rates, and lenders add a certain percentage over their prime rate or their best customers rate.

For instance, if the prime rate is 4.5% and the lender decides to have a high loan rate plus 2% for your buildings, you will receive an interest rate of 6.5%.

Risky Loan

 The riskiest of all three are construction-only loans. Please note that the lender expects full payment of the loan at the end of the loan term.

If you are genuinely interested in this way, make sure that you have funds available for paying the loan alone – if no more financing is available to you.

Commercial building loans differ from other loans. The majority of loans are structured so that a total lump sum is paid to the borrower. After the loan comes in, the borrower refunds the loan over a fixed period of time through scheduled payments.

Commercial mortgages, for instance, often have over ten years or longer monthly repayment schedules.

The total amount of the loan is not received in advance with commercial construction loans. The borrower will instead work with the lender to establish a drawdown schedule. This means that partial loan amounts are released when the project reaches new milestones. The first draw, for example, is to clear and develop the land. When the foundation is poured, the next draw may take place. When the building is framed, you will release another attraction.

As every milestone is finished, a lender generally needs an inspector to confirm that work is completed before the next draw is released. That will continue until all milestones are achieved, and the loan has been distributed in its entirety.

You will pay interest on only the portion of the loan proceeds you received with a commercial construction loan. If you spend S$860,000 for your new building but have only S$136,000, the lender will give you interest for S$136,000.

Typically, the borrower pays the interest-only until the loan is fully disbursed. The commercial building loan is structured. At the end of the construction project, borrowers can then pay the principal in one lump sum.

However, when the project is completed, and the entire loan is due, what does a borrower do next? The borrower can now receive a commercial mortgage instead of having to make a large payment. The property is collateral, and the borrower will use retail mortgage funds to repay the commercial building loan. The new hypothesis locks the lender in a more extended monthly period in more affordable payments.

More long-term options are provided by other commercial construction loans, like the CDC 504 Small Business Administration loan, so you will not require an additional loan after completion of the project.

Interest Rates

Borrowers should expect to pay interest rates from 4% to S$17

for commercial construction loans. You will give the lowest interest rates to borrowers with the best credit scores. You are also a factor in the type of lender you work with. A commercial loan from a bank typically has the lowest interest rate, whereas hard-working creditors charge more interest on their loans.


Several fees can be associated with a commercial building loan. The charges vary according to the lender. Some directions for this loan include: You may have to pay for:

  • Guarantee Fees
  • Processing Fees
  • Documentation Fees
  • Project review Fees
  • Fund control Fees

Down Payment

As a commercial building loan is a high-risk loan, it is necessary to make a down payment. The borrower takes certain risks from the lender by paying a down payment. In general, 10% to 30% of the overall project cost is required for a down payment. The lender fund will rarely be able to cover 100% of the costs of a commercial project.

Conventional lenders use the so-called loan-to-cost calculations for business construction loans. The loan-to-cost ratio is calculated by dividing the total loan demanded into the total cost of the project. For example, for a project with an overall cost of S$720,000, a business is applying for a loan of S$251,000. In this example, the loan-to-cost would be 95%.

Although the requirements vary with the creditor, most require 80% to 85% of the loan. For example, the lender would loan S$218,000 for 80% and S$232,000 for 85%.

What is the borrower doing if this happens? There’s another option – mid-term loans – that we’re going to discuss a little later while they might be forced to pay the remaining costs off the bag.

A commercial building loan for various types of trade immobilization can be a complex process. This post will clarify commercial building loans and demystify the lending process.

Commercial Construction Loans and Lenders

When a developer makes a loan application with the lender, the construction loan process begins. Local Community and regional banks are almost always construction or development creditors. This was historically due to bank regulations limiting lending areas. In the last few years, construction loans have started being made by life insurance companies, national banks, and other specialty finance businesses. The majority of construction financing remains, though, provided by the Community and regional banks, as they understand the local market conditions and the reputation of real estate developers much better than by local banks.

Two loans are usually required to finance a project for property development, although these two loans are sometimes combined into one:

  • Financing for the short term. This phase of funding supports the project building and leasing phase.
  • Durable financing for an extended period. After “stabilization” is achieved in a project and leases are carried out at the market level, the building lending is “taken up” by long-term financing.

The combination of both loans by a bank usually takes the shape of a building loan and a small loan. The mini-perm financing takes the building loan but is shorter than conventional permanent financing. The mini license aims to repay the building loan and give the project history of operations before refinancing it in the perm market.

Commercial Construction Loan Underwriting

Usually, the Bank passes a fast internal decision-making process after the initial loan application is submitted. Suppose the senior lender of the Bank gives the project a lead. In that case, the lender sometimes issues a period sheet describing the terms and conditions of the loan proposed, provided that all presented information is accurate and reasonable. The loan provider will proceed with total underwriting and approval of the proposed loan after the review, negotiation, and acceptance of the non-binding term sheet.

The loan will evaluate the proforma of the project, the building budget details, local conditions for the market, development team, and the guarantees financial capacity and, in general, address any other risks associated with the loan application during the underwriting process.

Typical documents required in the subscription process include tax reports from borrower/guarantor, financial statements, property-owned schedule and contingent liabilities for the guarantor(s), the project proforma, the sources and uses of the construction loan, cost estimates, full-project plans, engineering requirements, and, in general, all other documents to support the loan application.

From a bond perspective, one of the main differences between a commercial building loan and an investment real estate loan is that there is no history of operations to underwrite with a construction loan. The project economy and thus property appraisal is based solely on the proforma of immobilization. The credit approval process is similar to the others. Still, the development team and general contractor and the prevailing market conditions are given further consideration because of the additional risks involved in construction loans.

After the approval of the commercial construction loan, the Bank will issue a binding commitment letter to the borrower. The undertaking letter resembles the term sheet but includes much more details on the terms of the loan. In addition, the letter of commitment is legal, but it is not binding to use the term “file.”

Commercial Construction Loan Closing and Beyond

After the loan signature and approval have been completed, a loan then moves into the closing process, which can take its own life. The closure of commercial construction loans is complex and involves an overwhelming amount of documents and procedural nuances. The closing shall generally be done by the lender’s lawyer, the borrower, and the borrower’s attorney. Usually, a loan closing checklist with an undertaking letter, which describes in detail what must be done before the loan can be closed and funding can begin, is also issued.

The mechanics of the loans shall be responsible mainly for the loan management department in a bank after the loan closes. The borrower of the loan (also known as the borrower) finances the borrowing according to the Bank’s internal policies and procedures. Commercial construction loans are usually funded partially by closing the loans to cover hard and soft costs previously paid. Following the initial partial financing, a loan is spent based on drawing requests for incurred costs monthly. The developer shall submit such charges, and the lender shall verify them.


Commercial building loans can be complex and challenging to secure quickly. But it can help to demystify the funding process by understanding how construction loans work and how lenders evaluate commercial progress. We will dive into different sections in detail in future posts. Meanwhile, please let us know in the following comments if you have specific questions regarding commercial building loans.

Commercial property is a home to business or land solely intended for profit, either through rental earnings or by capital gain. Commercial properties are also known as commercial properties. It includes buildings for offices, medical services, industrial properties, malls, hotels, retail shops, housing for several families, farms, parking garages, and warehouses. You can also include more significant residential properties.

Usually, commercial real estate loans finance the purchase and renovation of these properties. Five commercial loans are provided, i.e., FR Capital, CDC/SBA 504, Traditional Commercial Mortgage, Commercial Bridge Loan, and Commercial Hard Money Loan. Each loan has its conditions and qualifications.

The business loan process varies considerably from the standard household mortgage. Governmental bodies do not support these lending institutions. As a result, most commercial lenders are risk-averse, charging higher rates than home lending. There are several factors which a borrower should consider before applying for a commercial loan.

Deciding the Amount of Loan, You Need

Depending on your current needs, you should determine the amount to be borrowed. You need to know that most loans do not permit a second mortgage. A traditional acquisition credit is issued once a borrower purchases a new property. In this case, the required down payment is 20%-25% of the total cost. In contrast, for traditional loans, smaller down payments are required. For that reason, the cost of loan-to-value (LTV) ranges from 85 to 90%.

When selecting a creditor, be careful that you get sufficient funds to satisfy cash flow needs. It may lead to a small company failure if this is not achieved. Building on the amount of money you request, commercial lenders might be reluctant to finance the loan. For example, small companies that borrow over S$5.5 million will receive different treatment from potential lenders than those that borrow less than S$2.8 million.

Understand Your Loan Repayment Terms

Contrary to home mortgages, commercial immobilizing loans include two terms, long-term, five to 20 years long-term, and three years or less long-term loans. Borrowers are usually obliged to repay their trade loans before they borrow from banks in total. Before the full term. In that case, for the first few years, the borrower pays the principal interest and then pays the balance back in a lump sum. In the assigned time, the borrower may have insufficient money to refinance or recalibrate the bond before the end of the balloon.

Non-bank lenders usually have less stringent credit obligations and may even offer long-term commercial loans, primarily commercial credits. Even if these loans involve high-interest rates, balloon payments are not frequent because you can repay the loan consistently for years to come. The actual interest rate depends on the type of business, the lending value, and your business’s financial health. Tariffs are often lower than most other company loans.

Determine Your Down Payment Amount

An immovable purchase for business is not much different from buying a house, but you must not forget that a down payment is required. While most home loans require a 20% down payment or value credit, the values for commercial immobilization purchases can vary. Most commercial lenders request a minimum down fee of 30% before considering or approving a loan application.

When you invest in a commercial property, your LTV costs will fall, and this means that you will likely require the borrower to pay more. Therefore, it would help if you aimed to spend the least money or achieve high LTV values. You have to consider your ability to pay the loan, which means that the loan is within your price range.

While a sizeable down payment tends to reduce the potential monthly costs, be aware that the total amount still has to be paid. For example, with FR Capital loans, you can offer a loan of up to 90% and pay a down payment of 10%. You need a down payment of 25%-30% to qualify if you are looking for a commercial real estate loan for the value of S$340,000 to S$6.8 million with a conventional commercial loan. On the other hand, private commercial lenders require a 15% down payment, and the lender pays the remaining 85%.

Contact Us

Thank you for your message. It has been sent.
There was an error trying to send your message. Please try again later.

Or Call Us: +65 8336 3133

Check out our Help section

About FR Capital

FR Capital is a Singapore consultancy firm that helps SMEs to secure business loans from banks and financial institutions. We concentrate on SME finance, and through our expertise and network, we help clients secure funding with low-interest rates efficiently and hassle-free.