The economy in the Philippines has been growing at a steady pace owing to multiple factors that includes government’s efforts and bolstering growth in sectors such as manufacturing and e commerce. The ‘’Purchasing Power” of Filipinos has been on the rise contributing to spike in lifestyle standards and overall business environment. In terms of economic stability, the county is fast becoming one of the most preferred investment destinations in Southeast Asia.
Naturally, the entrepreneurial spirit has seen a huge spike over the last few years. Start Ups and ITes based industries are taking the country to newer heights. While the new breed of entrepreneurs take a step ahead and realize their business dreams, one of the most common concerns of a business owner is the monetary commitment required to either kick start the business campaign or to ensure continuity in operations. To bridge this gap, one can confidently look at Business Loans as an option to fund the requirement apart from others such as VCs, Angel Investors etc.
The banking structure in the country has been a healthy mix of both homegrown and multinational banks. Most of them offer Business Loans to help proprietors grow their business. The products portfolio varies from one time loan disbursal to provision of revolving credit. This is one sector that has a variety of products with exclusive features and benefits.
What is a Business Loan?
A loan provided to entrepreneurs and business owners to address their business needs such as setting up of business, expansion, procurement and so on. It is similar to the Personal Loan in the popular world and works on similar principles. The borrowed amount should be repaid in equated installment along with applicable interest charges. As stated earlier, there are various types of business loans in the market today. Both short and long term financing is provided as elaborated below.
Long Term Financing
Considers the following aspects of the business operations and extends funds to manage long term prospects to ensure continuity in business operations.
- Expanding Business
- Procurement of Equipment, Gadgets & Fixed Assets
- Franchise Financing
- Existing Mortgage/Commercial loan refinancing
- Towards construction/renovation of the commercial property
Short Term Financing
Covers all those financial requirements to help in planning for ad hoc expenses and working capital requirements. Some of them provide a credit line represented by an ATM card to extend the flexibility of using the loan amount as required.
Based on the requirement, creditworthiness & bank’s rules in this regard, one can get up to P10 million as business loans. The loan repayment term provided generally hovers around 3-12 months. For large ticket loans, the tenor provided can go up on multiple factors.
Business Loan Requirements
Since this loan involves considerably higher amount compared to other types of loans, the paperwork procedure is quite elaborate. The basic documentation has been provided below. Depending on the type of business in operations or the type of industry it operates in, the requirements can change. Always get a detailed checklist beforehand and apply so that all documents are in place.
- Application form in the required format along with signature of all applicants.
- Income Tax Returns(ITR) of last 3 years for the period specified.
- Valid IDs.
- For single proprietorship, DTI permit and SEC registration for corporate business.
- Corporations are required to provide notarized board resolution.
- Latest GIR, Company profile and other related documents.
- Resume of stockholders(in case of large corporations) and the loan applicant in case of first time entrepreneurs.
In addition to the above, aspirants who are applying for a Business Loan for the purpose of construction/ development of a building/plant are required to fulfill the below.
- Specifications & Building Plan
- Bill of Materials and Subdivision plan
- Feasibility Study details
Owing to various schemes and offers from different banks offering loans in the Business Segment, the rates vary depending on the type of business loan. Generally, they start around 3% Monthly Add On. It's wise to visit the nearest branch to inquire about the existing products and their terms. This task also helps in assessing business requirements.
Loan Tenure for Business Loan
Depending on the type of business loan you’re availing, the following are the available tenor options.
|Franchise Loan||Up to 5 years|
|Short Term Loans||Up to 1 year|
|Long Term Loans||Up to 5 years|
Business Loan vs Personal Loan
|Business Loan||Personal Loan|
|Available for business purposes only. The applicant is required to furnish details of the purpose of loan at the time availment.||Provided without stress on the mode of utilization. Can be used for personal as well as small time business requirements such as working capital, expansion etc.|
|This product is designed to provide maximum quantum of loan amount on the basis of the proposal made by the applicant. The requirement is likely to be covered under one instrument.||The amount of loan disbursed under this product may not be sufficient to cover all costs of the business requirement. The maximum quantum of loan provided is P2 million.|
|In terms of implicant of interest charges, this loan is on the higher side owing to the moderate tenor options and higher rate of interest.||The interest rates are much lower compared to business loans. Ideal loan for small business and startups looking for that initial funding.|
|The term provided for repayment is quite conducive, depending on the type of business loan. It gives sufficient time for repayment without affecting the working capital requirements.||The loan tenor is moderate. If you have limited financial resources and have taken a big loan, the monthly EMI value may be quite high.|
Words of Advice
Explore the world of Business Loans before availing one. This is one loan product that drills down the requirement and offers financial assistance. The terms, rates and benefits are specific to the product as explained in earlier sections. Compare loan offerings from various banks before choosing one. Since this is quite a complex loan in terms of its utility and paperwork, it's highly recommended to stay informed about the nitty gritties of the product. As a responsible business owner, you must also do a feasibility study and assess your short and long term needs of operating the business and get a loan that is most optimal.