A Business Loan is a source of financing for businesses and companies to expand and improve, purchase real estate, supplies, inventory and equipment, to increase working capital, for short term operational costs, for emergency repairs and maintenance, to help meet cash flow requirements or for any business reason.
Debt Financing
Banks and financial institutions offer businesses in the Philippines various types of business loans. These include:
* Working Capital Loans – Short-Term Loans meant to finance the day-to-day operations of the company.
* Factoring Loans – Advances on account receivables or billed invoices. Customers will directly settle with the loan providing bank.
* Short-Term Loans – Loans for periods of up to a year given for paying bills, settling payrolls, buying inventory etc.
* Peso/FX Credit – Exclusive to foreign exchange earners such as exporters or producers, this is used to finance short-term requirements and provide the option to withdraw in Pesos or in a foreign currency depending upon the requirements of the borrower.
* Overdraft – A credit facility that allows the account holder of a current account to draw more than what is in the account up to the credit limit allowed by the financial institution.
* Hire Purchase Loans – Financing the purchase of a large asset in installments. The bank/finance company will retain the legal title/ownership of the asset till all dues are paid in full.
* A wide range of trade financing credit services and agri-processing loan programs (for instance, the Sugar Loans Program of the Philippine National Bank offers a range of credit facilities that facilitate sugar production and processing) are also available.
* Larger companies with established track records can go in for long-term loans or they can even raise funds through the open market through the issuance of debt instruments or bonds.
Equity Financing
Another way for a business to raise finance is to divest part of it’s ownership (or equity) to private investors like Angel Investors, Venture Capitalists and Private Funds. In addition to investing in the business, these investors can also provide the founders with management and technical know-how.
Loans Against Collateral
It is sometimes difficult for companies to access unsecured loans. They can then raise loans against a collateral like real estate, especially commercial real estate and trade / manufacturing inventory (for short-term loans). Because these loans are secured by collateral, interest rates will be typically lower than rates for secured loans.
Start-Up Businesses
Start-ups are companies that have just started their business journey. With minimal assets, an unproven business model and barely a track record – not to mention the lack of a credit history – business owners may need to provide, in addition to their own cash, their own personal credit rating to avail financing. Mainstream financing is also available against collateral.
Microfinance
Lending to micro, small and medium enterprises (MSME) has picked up and there are a number of financing programs, supported by the government and banks, available. One such program is the Business Development Loan Facility under the SSS (Social Security System) which was started in 2012 and which released P189million worth of business loans in its first year. SSS member-employers may avail of the loan facility through the SSS accredited participating financial institutions (PFIs) which will on-lend the fund to eligible borrowers for financing.
The Bureau of Micro, Small and Medium Enterprise Development (BMSMED) has provided a freely downloadable handbook on the website of the Department of Trade and Industry, “Financing Programs for MSMEs”, a compendium on the sources of funding available from government and private sector institutions for MSME businesses based on the capabilities of the borrowing enterprise.
Loans in Philippines 