Starting a business is a great way to assure that you have a stable future. Regular employment may only take you up to a certain level but if you want to earn more, one of the best ways is to jumpstart your business.
Unless you have sufficient savings, money is what’s needed to operate a business. A good way to ensure that you have sufficient fund back up is to get a business loan.
In this article, you will learn where to get a business loan in the Philippines, how to get one, or what bank to choose along with key business loan requirements, and more.
One of the most frequently asked questions by first timers venturing into a business world is- What is a business loan?
By definition, business loans are borrowed money for a soon-to-be business owner to gain financial assistance in order to capitalize their business and get started. It will then be a debt that shall be repaid according to the conditions under the particular loan.
Irrespective of the size or type the business (whether a small enterprise or a medium-sized business), considering a loan will be a practical thing to do. It will help the business propel itself in the market before it grows and develops. Before choosing a bank and applying for a loan, it is important to understand guidelines, key steps, requirements, and recommendations.
These types of loans work in a way that the lender charges interest rates alongside the borrowing of the money. It can either be fixed or variable interest rates. The former pertains to rates that do not change for the duration of the loan and the payback period. The latter refers to interest rates that can change or fluctuate based on various determinants.
Loans may be sourced from traditional banks, home equity lines of credit, and commercial loans.
Getting Business Loans In The Philippines
One of the most promising landscapes to do business today is the Southeast Asian economy, the Philippines. Based on statistics, the Philippines is ranked 95th among 190 economies in the world in terms of ease of doing business. This ranking lists countries against each other based on how the current environment is conducive for business owners.
The World Bank says that the local economy “remains strong” and is expected to grow 5.8 percent this year, with 6.1 percentage projections in 2020, and 6.2 percent in 2021.
Whether you are looking for large-scale enterprise or small business loans in the Philippines, you have to remain educated on the key factors that come into play. With the rising inflation in the country, not to mention political changes, it will still remain a risk for your investments. There are steps and requirements to fulfill.
Commercial banks are among the providers of business loans in this Southeast Asian country. These banks may lend as much as several millions of pesos for aspiring Filipino business owners and also for foreign entrepreneurs legal enough to start their business in the Philippines. Moreover, there are also different types of business loans in this nation. These include:
- Bank loans
- Government loans
- Private company loans
- Personal loans for start-ups
- Online-term loans
- Franchising loans, and more
Good interest rates
One of the key information that you have to look up if pursuing a business loan is the interest rate.
Interest rates vary depending on the prevailing rate of the lender, the type of loan to be applied, and the loan terms. For example, particular lenders may charge higher interest rates on business loans which are unsecured more than the secured ones.
Considering these factors, business owners looking to avail a business loan in the Philippines should keep these options in mind. Are you looking for term loans, credit lines, secured or unsecured loans?
Business loan requirements and documentation
Aside from finding out about good interest rates, you also have to remember the requirements needed. Sole proprietors must be Filipino citizens aged 21 to 65 years old upon maturity of the loans.
They should also have at least two years of profitable operation, and at least two years of stable income for non-entrepreneurs. Those with good credit standing will also be eligible.
For partnerships and corporations, businesses registered with the country’s “Trade and Industry Department”, and the “Securities and Exchange Commission” with two years of profitable operation at the very least should be qualified. They should also have a good credit rating and a minimum annual gross sales.
So, what are the documents that you need when applying for a business loan?
Generally, these include:
- Signed and completed loan application form,
- Recent income tax returns,
- The latest statements of account from the bank,
- Valid IDs,
- Business documents.
For first-time business owners, you will need to present a certificate of employment, resume, and latest pay slips.
Meanwhile, for existing business owners, they will need to submit their business profiles, permits, certificates, recently audited financial statements, articles of incorporation or partnership, list of suppliers, and board resolution. For specific information, you will have to check with your issuing bank.
Online and small business loans
Now, let’s take a look at the factors that govern online business loans and small business loans.
Today, as you browse around social media, you can find several websites that offer online loans with low-interest rates, and low minimum amounts. These online loans are very similar to bank loans, except that they are processed online.
The application process is simpler and those who have tried it say that it is easier to get accepted and processed. Security from these providers should remain your top concern. Online short-term loans are commonly payable between three to six months.
Then you have small business loans. What are these?
Mostly spearheaded by the Philippine government, small business loans are accessible via local banks and other specialized financial institutions.
They are both secured and unsecured loans, but businesses applying should make sure that they have a credible business history. This category also includes micro-financing loan schemes for upcoming owners of agricultural businesses, market stalls, and other micro-businesses.
Key Steps in procuring a business loan
1. Get the legal matters sorted
One of the biggest mistakes that those wanting to get a loan commit is stopping at a stage in the middle of the process because they lack the legal documents. Even before filling out the loan forms, it is important that you sort out all the legal matters.
Ponder on where you will use the money and the reasons for applying. This can either be on expanding the current business you have, increasing the capital, purchasing equipment, or investing in a franchise.
2. Create a business plan
Keeping in mind the factors stated above, the first step is to prepare a business plan. Taking some time to work on this before heading to the bank to provide the loans in important.
Your business plan should include an outline of the opportunity (statement of the problem, products and services, etc.), the marketing and sales plan (pricing, marketing activities, and strategies), and your financial plan (forecast, financial, and statements).
3. Determine the amount
A crucial step when applying for a loan is determining the amount. You should be able to estimate an optimal amount that you will need for the business. Do not ask for large amounts to start with as this might affect your loan application. The loan provider might doubt your credibility as the owner of the business.
Also, do not underestimate the amount, because you don’t want to deal with issues once the loan is approved. To mend this, it is imperative that you are able to commit on the cost research, fund evaluation, and budget planning.
4. Eligibility check
In the previous paragraphs, you have learned the pointers of eligibility for these attempts. Not everyone will be accepted for the business loans on the onset. Check with your bank provider on these factors and categorize your business.
5. Finding the best loan
Several major banks in the Philippines offer business loans that suit your requirements, preferences, and eligibility. Finding the best loan entails doing the steps outlined above and visiting several banks before arriving at your final decision. Take a look at the interest rates, terms, conditions, and payback schemes.
6. Prepare and submit documentation
After filling out the application, the local bank representative will speak to you regarding the documents needed. These documents depend on whether you are a sole proprietor of the business, a first-time loan applicant, or a corporation.
It will take a few days before you can collect these documents, so expect this process to take some time.
The government in the Philippines has various provisions that exist for business loans. The national government has several agencies that work alongside them to help provide more funding for local businesses but through a government loan.
According to the Philippine central bank, consumer loans are reported at PHP 1.6 billion in June 2019, higher than the data recorder within March 2019. The previous statistics in the month of March was at PHP 1.7 billion.
Consumer loans refer to the borrowing of money of a person from a lender, which could either be secured or unsecured.
Qualifications and measures are in place right here. Usually, members or employees of the government agencies have more possibilities of getting approved for these loans.
These include regular contributions and that payments are deducted from their salary and then, forwarded to these government agencies. Here are a few examples:
- Overseas Workers Welfare Administration (OWWA) loans
- Social Security System (SSS) loans
- Workers’ microfinance program
Top 5 Private Finance Lending Companies In The Philippines
- Pagasa Philippines Lending Company Incorporated
- Prime Loan Plus
- Cash Mart Philippines
- MoneyMatch Philippines
- Asteria Lending
The Philippines is a business-friendly destination in Asia, should you want to make the change and start your own business. Whether this is a small enterprise or a corporation, these business loans can be availed of with ease, considering the current economic landscape that this country is in.