In Singapore, a bridging loan is a significant financial solution for many small & growing businesses and aspiring individuals. It can provide a short-term solution to finance a big purchase, like when you need to acquire a new property before being able to sell your current one.
This loan is helpful if you need access to funds right away and don’t have time to wait for traditional financing. In such cases, a bridging loan in Singapore can straighten the finance chaos and allow borrowers to meet their needs without getting into any trouble. Moreover, these loans are flexible and have a fast approval process, making them a feasible option for those who need funds fast and securely.
In this article, discover the workings of a bridging loan and learn how to apply.
Bridging Loan Singapore Guide
What Exactly is a Bridging Loan?
If you need to pay the down payment for your dream villa but have yet to receive the sales proceeds from your previous one, a bridging loan is a short-term loan that you can take out from the bank to cover the gap between these two payments.
Let’s make it more simple – suppose you are looking to upgrade your property and have already come to the point of signing the Sales and Purchase agreement. At this point, you may need to pay a significant amount of money as a down payment. But if you don’t have the funds available and have yet to receive the money from the sale of your old property, a bridging loan from the bank (most probably from the one you are getting your home loan from) could help to bridge this gap.
In 2016, ING Capital issued a bridge loan to Olayan America Corp. to facilitate the rapid purchase of the Sony Building in New York City. The short-term loan enabled Olayan to quickly close the deal, providing the necessary capital to cover part of the purchase until permanent, long-term financing was secured.
Things You Must Know About Bridging Loan
You have a six-month deadline to repay the bridging loan with an annual interest rate of 5-6%. The bridging loan interest rate may differ depending on the lender you select. It is usually limited to around 20-25% of the property value, but some lenders may be willing to offer more depending on your old home’s sale proceeds.
That being said, let us now discuss the types of bridging loans in Singapore.
In Singapore, there are two varieties of bridging loans: capitalized interest and simultaneous payment.
1. Capitalized Bridging loan
With a capitalized bridging loan, the lender will give you the finances to buy a new property. As a borrower, you don’t have to start paying the bank back until you sell your old property.
2. Simultaneous Payment Bridging Loan
On the other hand, a simultaneous payment bridging loan offers the possibility to pay off both the bridging loan and the new mortgage at the same time.
If you decide to go with this option, you will have 12 months to sell your previous residence before you begin to repay the loan.
How Does Bridge Loan Work?
Bridge financing, aka gap financing or swing loans, is a form of interim funding that provides a temporary money solution for businesses and individuals. These loans are designed to bridge the gap between the need for funding and the availability of more permanent financing options. The best part – they are customizable to meet the specific needs of the borrower, and thus, provide an ideal solution to manage cash flow and meet short-term financial needs successfully.
Lenders usually offer real estate bridge loans to borrowers with outstanding credit scores and a low debt-to-income ratio. These loans combine the mortgages of two properties, providing the buyer with extra time to sell the original house. Nonetheless, the loan amount is usually restricted to 80% of the combined worth of the two houses, necessitating the borrower to possess considerable home equity in their prior dwelling or adequate cash reserves.
Many companies in Singapore seek bridge loans when they need immediate funding while waiting for permanent financing. For instance, if a company is expecting to receive an equity investment in half a year or so, it may take out a bridge loan to provide the necessary capital to pay its employees, rent, utility bills, stock costs, and other expenditures until the investment is finalized.
Apply for Bridge Loan
What’s the Eligibility Criteria
To be eligible for a bridging loan in Singapore, you must have begun the selling process of your property and have a good credit score and history. This requirement is the same as other loans, regardless of whether you are a Singaporean, a permanent resident, or a foreigner.
Details About Required Documents
You must possess your Option to Purchase (OTP) document to initiate the application process. This document shows that you have the exclusive right to buy a certain property.
In addition to this, you should bring any existing bank loan statements and CPF withdrawal statements to the lender so that they can calculate how much you can spend.
What are the Charges?
The charges for bridging loans in Singapore can differ from one lender to another. Generally, banks will charge 5-6% annually, whereas licensed money lenders can charge up to 4% monthly. Do note that it is essential to make timely repayments to maintain a healthy credit rating.
Where to Get a Bridging Loan in Singapore?
In Singapore, most banks offering home loans usually have bridging loans as part of their products. A good credit score is, however, highly valued by banks. If you want the advantage of flexibility and speed of a licensed money lender, or if your credit score is not so good, you can contact a licensed money lender, such as Avis Money Lender.
When to Apply for a Bridging Loan
If you are looking to obtain a bridging loan in Singapore, it may be appropriate to apply if you are:
- Seeking to purchase an HDB flat and need an HDB bridging loan;
- In the process of upgrading from an HDB flat to a private home and require a significant downpayment;
- Looking to purchase a commercial property and need to bridge the gap between the purchase and the sale of an existing property.
If you’re still uncertain about how a bridging loan works, it is recommended to consult with a licensed money lender in Singapore. They can provide you with more in-depth information on the process and requirements. You will need to meet the necessary criteria and have the appropriate documents ready. Consider talking to a loan specialist at Avis Money Lender for guidance.
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