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What are Property backed Secured Loans?
Property backed Secured Loans are notes taken by companies who have pledged a local property (Personal or Corporate) as a form of collateral against the note.
What are the types of Properties that can be pledged?
They can be residential, commercial, or industrial.
Who does the property belong to?
The property being pledged will belong to a Director of the SME, or to the company itself.
Who will hold the charge on the property?
During the note tenor, the charge will be held by a Trustee (Watiga Trust) engaged by Funding Societies on behalf of all Investors.
How is it secure?
The security backing the notes are Singapore based residential and commercial properties owned by the SME or its Director(s) and Funding Societies only accepts the first charge on the property (through a licensed Trust) for all notes.
Our panel lawyers help us in creation of the charge and the Trust holds the charge on the property on behalf of the investors.
Is this product MAS approved?
Funding Societies Pte. Ltd. has a Capital Market Services Licence (No: CMS100572-1, issued 2016) to conduct the regulated activity of Dealing in Securities, and this Product falls under that category.
What are the note amounts?
We will cater to notes of up to S$3M.
What amount of the property valuation is being loaned?
We will be capping the note amounts to 80% (more commonly 70%) or less of the property valuation or $3M, whichever lower, to cater for any market fluctuations.
What is LTV and how is it important?
LTV or Loan to Value is a ratio that determines the note amount given as a percentage of the value of the Property. For example, if the note taken is $1,500,000 and the property is valued at $3,000,000, the LTV will be 50%. Property value is provided by independent valuers who also work with banks.
The note values are usually capped at max of 70% of the property valuation, which provides around 30% buffer for unforeseen shifts in property prices that result in properties being devalued.
Do the properties pledged have existing loans tied to them?
If the property has an existing loan, it will be need to fully repaid before we disburse the remaining funded amount to the SME to ensure first charge. This means in scenarios of liquidation of assets this loan (senior debt) gets priority over other unsecured (junior debt).
How do you make sure that the property isn’t mortgaged to multiple institutions?
We run Credit Bureau checks to find out if there is any and also create a charge in the name of the trustee before disbursing the funds.
What are the returns?
Returns range from 4% to 8% per annum on a simple interest basis.
Why are returns lower than Term or Invoice Financing?
We adopt a risk adjusted returns approach for all our products. As these notes are backed by assets, it increases the likelihood of recovery of Principal and Interest since the asset can be disposed by the lenders in worst case scenario of default. Given the lower risk it provides a healthy balance to investment portfolios with a mix of higher risk unsecured notes and secured property backed notes. There is a late interest charged to the SME in case of delays in repayment which is credited to the investors.
How much is the minimum contribution / investment?
The minimum contribution usually starts at $20. However, it may vary from note to note. As a form of good practice, we encourage you to diversify your portfolio across multiple notes.
What is the tenor for Property backed Secured Loans?
The tenor will be capped at 12 months.
What are the fees?
The fees are 18% on interest earned. For example, if you receive Interest of $100 for a particular note, we will retain $18 and credit the balance of $82 to your account.
Are there any late interest charges?
Late interest is chargeable at 0.1% per day of the overdue principal.
What are the risks involved?
Market Risk - The valuation of the property can fluctuate during the note tenor
Liquidity Risk - In the case of a default, your principal will likely be held for a longer duration than the initial note tenor
When is a note considered to be in default?
A note will be considered to be in default when it reaches 90 days past due.
What happens in the case of a default?
We will issue a notice to the SME that we are looking for a buyer for the property. If they are still unable to make repayments, we will allow up to 3 months to identify a buyer before auctioning the property through an auction house. Typically, an auction house will take between 6 months to 1 year to sell the property, and the proceeds from the sale will be used to repay the note. Our panel lawyers will help us with the process.
What if SME can't pay principal at end of tenor?
The SME can opt to refinance the note after revaluing the property, with Funding Societies, or another financial institution subject to full credit checks and a good repayment track record. It is fairly common for SMEs to refinance property notes given that it’s not always possible for them to pay off the large principal within 1 or 2 years.
In case of refinance with Funding Societies we will crowdfund again after end of the tenor and existing investors have option not to invest into the refinanced notes.
What happens if the proceeds from the property sale is insufficient to repay the note?
This is highly unlikely given the max LTV of 70%. However, in such an exceptional scenario the Personal Guarantor/s (PG) and SME will be liable for the balance amount.
What happens if the proceeds from the property sale exceeds the outstanding due?
The remaining proceeds after paying off the note will be returned to the SME.
How much time does it take to liquidate the property?
Typically, an auction house will take between 6 months to 1 year to sell the property, and the proceeds from the sale will be used to repay the note. All costs incurred during this process will be born by the SME.
If you have more questions, feel free to reach out to us! You may drop us a call at +65 6221 0958 (9am to 6pm, Monday-Friday), email us at email@example.com, or live chat with us using the Messenger icon at the bottom right of your screen!
The rate of return for this investment normally falls within 4%-8% p.a., but the actual rate of return will depend on the individual offerings in question. This article provides general information on the type of investment, and you are encouraged to seek independent financial and legal advice before investing.