Small businesses in the Philippines have a few options when it comes to securing loans. The most common way to get a loan for a small business is through banks. However, there are other institutions that offer loans for small businesses, such as the SME loans from the Department of Trade and Industry. Some online lenders cater to small businesses in the Philippines.
Here are some business tips for Filipinos on how to get a loan for a small business in the Philippines.
How to get a loan for a small business in the Philippines
There are a few requirements and processes to get a loan for your small business in the Philippines. The most important thing is to have a clear and concise business plan that outlines your goals, strategies, and how you plan on making the loan payments. You will also need to provide financial statements, tax returns for the last three years, and collateral.
The first step is to research and compare lenders to find one that best suits your needs. It’s important to read the fine print and understand the terms and conditions of the loan before signing anything. Once you’ve found a lender, you will need to fill out an application that will include questions about your business, such as its size, revenue, expenses, etc.
After the application is complete, the lender will review it and determine if you are eligible for a loan.
Types of loans available in the Philippines for a small business
When you’re ready to take out a loan for your small business, there are a few different options available to you in the Philippines. Here are some of the most common types of loans that small businesses can choose from:
1. Traditional bank loans for a small business in the Philippines
When it comes to securing financing for your small business, you have a few options. You can go the traditional bank loan route, or you can explore other financing options like micro loans, lines of credit, or even credit cards.
Traditional bank loans can be a good option for businesses that have been in operation for a while and have a strong track record. Banks will typically require collateral (like property or equipment) and a good credit score before approving a loan. But the downside of bank loans is that they can be difficult to qualify for, and they often come with high-interest rates.
For small businesses just starting out, or those with bad credit, alternative financing options may be more ideal. Microloans and lines of credit can often be easier to qualify for than traditional bank loans, and they usually come with lower interest rates.
Most banks in the Philippines are offering SME loans.
Bank’s Term Loan Facility?
A term loan facility from a bank is a type of financing that is typically repaid in scheduled installments over a set period of time. The loan amount, interest rate, and repayment schedule are all agreed upon at the outset of the loan. Term loans are generally used for larger capital expenditures such as equipment purchases or real estate purchases.
In the Philippines, banks typically require businesses to have been in operation for at least two years and to have a good credit history to qualify for a term loan. The maximum loan amount and repayment period will vary by the bank’s policy but can be up to PHP 10 million (approximately USD 200,000) with a repayment period of up to 5 years.
Interest rates on term loans in the Philippines are typically between 9-12% per year. To calculate the monthly payment, banks will use either the flat rate method or the diminishing balance method.
List of Banks Offering SME Loans
Filipinos can get loans for small businesses in the Philippines from the below list of banks.
|Bank Name||Types of Bank Loan||Loan Amount||Interest Rates|
|BDO||Term Loan||PHP 1M to 20M||6.75%|
|SME Ready Check||PHP 3M to 20M||6.75%|
|BPI||SME Term Loan||PHP 300K||Prevailing Interest Rate|
|Ka-Negosyo||Starts at PHP 500K||5.50% – 9.00%|
|Franchising Loan||PHP 100K to PHP 500K||Prevailing Interest Rate|
|CARD SME Bank||Term Loan||Starts at PHP 100K||Prevailing Interest Rate|
|Revolving Credit Line||Starts at PHP 500K||Prevailing Interest Rate|
|Express Investment Loan||Starts at PHP 100K||Prevailing Interest Rate|
|Maybank Philippines||Revolving Credit Line||PHP 500K to 50M||Prevailing Interest Rate|
|Term Loan||PHP 500K to 50M||Prevailing Interest Rate|
|PS Bank||Term Loan||Starts at PHP 2M||Prevailing Interest Rate|
|SME Business Credit Line||Starts at PHP 2M||Prevailing Interest Rate|
|Robinsons Bank||Term Loan||PHP 500K to 20M||Prevailing Interest Rate|
|Security Bank||SME Business Express Loan||PHP 1M to 3M||1.40% – 1.85%|
|Union Bank||MSME Business Loan||PHP 50K to 1M||3%|
|MSME Dealers Financing Line||PHP 50K to 10M||Prevailing Interest Rate|
Note: The above interest rates may change without prior notice.
2. Government loans for a small business in the Philippines
The Philippine government offers a few different loans for small businesses.
DTI’s Pondo sa Pagbabago at Pag-Asenso (P3) is a national government program to support various entrepreneurs in the Philippines to grow their businesses.
MSME Financing P3 Retail from the National Government
The Pondo sa Pagbabago at Pag-Asenso (P3) was designed to finance microenterprise borrowers with assets under PHP 3,000,000 and a maximum monthly interest rate and service fee of 2.5%. This 2.5% monthly cap is an effective rate based on the loan’s declining principal sum.
- Any self-employed person or microentrepreneur who has operated a legal business or livelihood for at least a year is eligible to borrow money from P3.
- The small business owner should carry a government-issued ID.
- The microbusiness owner has to have received a barangay clearance within the last three months.
- Evidence of microbusiness operation for at least a year (accepted certification forms include those from LGUs and other government agencies).
- Evidence of a one-year residence
Amount of Loan: From P5,000.00 to P200,000.00, depending on the size and capacity of the firm. The beneficiary may borrow up to P200,000.00 for businesses with at least one (1) employee. The money should go toward expanding the company’s operations or purchasing new supplies for the company.
Interest Rate: 2.5% per month in interest
MSME Financing P3 Wholesale from the National Government
This is a collateral-free loan from the national government with a credit line term of up to one year, subject to yearly review.
- Up to 24 months for PN Term
- Monthly or quarterly repayment.
- 2.0% interest rate each year after the initial year. Beginning the second year based on a declining balance.
- A 2.75% service charge will be deducted from the loan proceeds.
- There is no grace period, no pre-payment penalty, simultaneous principal and interest payment, and no rebates.
- An additional 0.5% per month for late payments
- Must be duly licensed.
- At least one year of operation as an MFI
- Capitalization must be at least PHP 500,000.
- A profitable previous 12 months’ net income.
- 30 day period should not exceed 20% net of provisioning PAR
- Quality of the past due portfolio of 20% net of provisioning
- 15% is the capital adequacy ratio (CAR).
- Debt-to-Equity Ratio is 80:20 maximum after the loan
- 10% for the ratio of liquid assets to deposits (lack of liquidity will not disqualify a company).
3. Alternative lenders for a small business in the Philippines
Alternative lenders are a great option for small and startup businesses in the Philippines that may not be able to get a loan from a traditional bank.
There are many online lenders that offer loans to small businesses, such as APAC Monetary, and the application process is usually quick and easy.
Most alternative lenders offer short-term loans, which can be helpful for businesses that need funding for a specific project or goal.
4. Home Equity Loans:
These loans are backed by your home’s equity and can be used for any purpose.
5. Lines of Credit
You can get a business line of credit from your bank to use for day-to-day expenses or larger purchases.
6. Equity Investment
A friend or family member may be willing to invest in your business.
7. Venture Capitalists
Venture capitalists provide startup capital for new and growing businesses.
8. Merchant Cash Advances
These short-term loans cover cash flow shortages by using your credit card sales as collateral.
9. Personal Loans
You can also take out a personal loan from a bank or other financial institution to use for your small business. These loans usually have higher interest rates than SBA loans but may be easier to qualify for.
10. Business Credit Cards
If you already have a business credit card, you can use it to pay for expenses and then pay it off over time.
How to Apply: A step-by-step guide on how to get loans for a small business in the Philippines
1. Make sure your business is registered and has all the necessary permits.
2. Prepare your business plan, sales history, and financial projections that outline your revenue streams and how you plan on using the loan.
3. Talk to the loan officer and present your business
4. Wait for the bank’s approval
It’s also important to have a strong credit score so that you can qualify for a lower interest rate. Once you’ve taken care of all of these things, you’ll be ready to apply for a bank loan.
First, they need to have a clear understanding of why they need the loan and how they will use the money. They should also have a solid business plan that demonstrates how the loan will help them grow their business. Additionally, they should be prepared to provide collateral, such as property or equipment, to secure the loan.
Borrowers should also be aware of the different types of loans available and compare interest rates and terms before choosing one. They should also be prepared to make regular repayments on time to avoid damaging their credit score.
Qualifications and requirements to get a loan for your small business in the Philippines
For a Filipino entrepreneur to be qualified for a bank loan, most of the banks in the Philippines will require the following:
- The small business must be duly registered and legally authorized to conduct business in the Philippines.
- Must have been in business for at least three years, with the most recent year being profitable.
- Must not have any debt surpassing 40% of the business’s monthly revenue.
Each SME loan must be connected to the major owner of the company; for partnerships and corporations, this entails:
- Before a loan can be booked, the owner with a simple majority (the person who owns the majority of the firm) must provide information, approve, and sign the loan application form and the surety agreement.
- If more than one owner has a simple majority, only one of them needs to approve the loan.
If the bank sees that you are qualified, you need to submit these requirements:
- An existing bank account is at least six months old and has a PHP 50K balance or an active credit card from any bank submitted as part of the application.
- Proof of permanent residency such as passports, government-issued IDs, bills, or voters ID.
- The applicant must be at least 21 years old at the time of application and no older than 65 when the loan is due.
Defining small businesses and their loan needs
Small businesses are a vital part of the Philippine economy, accounting for more than 60% of employment. However, these businesses often face difficulties in accessing loans from traditional financial institutions.
The Philippines has definitions for small and medium enterprises (SMEs), but there is no definitive size cutoff for small businesses. The Department of Trade and Industry (DTI) classifies SMEs as enterprises with less than PHP 3 million in total assets.
At the same time, the Securities and Exchange Commission (SEC) defines them as entities with less than PHP 10 million in total assets.
Important things to consider before getting loans for your small business
Things to Consider Before Getting a Loan. Loans can be very helpful, but they also come with risks. If you’re looking for financing, it s important to consider the following:
- What is the interest rate, and will it change?
- What are the terms of the loan, and will they change?
- What are the total costs of the loan?
- Can you afford to pay back the loan, including interest and fees?
- Will you be able to meet all deadlines for making payments?
The terms and conditions of loans
The terms and conditions of loans can vary greatly from lender to lender. It is important to compare different lenders to find the best loan for your small business. You should also be aware of the fees and charges associated with loans and the repayment terms and conditions.
Some lenders may require collateral for a loan, which could put your home or other assets at risk if you default on the loan. It is important to understand the risks involved with taking out a loan before you sign any paperwork.
Make sure you understand all of the terms and conditions of a loan before signing any paperwork. Ask questions if there is anything you do not understand. It is better to know all of the details of a loan before signing on the dotted line.
How to use a loan to grow your small business
When you’re starting a small business, one of the first things you need to do is figure out how to get loans.
While it may seem like a challenging task, there are actually several options available to you, both in the Philippines and abroad.
One option is to approach banks and other financial institutions in the Philippines and apply for a loan. This can be a difficult process, as banks tend to be risk-averse when it comes to lending money to small businesses. However, if you have a good business plan and can show that your business is viable, you may be able to get a loan.
Another option is to look for investors who are willing to invest in your business. This can be done through online platforms such as crowdfunding sites.
The benefits of taking out a loan
There are many benefits to taking out a loan for your small business.
A loan can provide the capital you need to start or expand your business, which can lead to increased revenues and profits. A loan can also help you manage your cash flow, as you will have access to funds when you need them.
Additionally, a loan can help you build your credit history, which can be beneficial if you ever need to take out a loan for personal or business purposes in the future.
Wrap Up: How to Get Loans for a Small Business in the Philippines
In conclusion, these are the steps on how to get loans for a small business in the Philippines: research and identify financial institutions that offer loans, prepare and submit requirements, and lastly, negotiate for loan terms. With careful planning and execution, getting a loan for your small business is possible and can be a key factor in its success.