Business Loan

Sometimes, having the best business idea is not enough to realize your entrepreneurial dream.

Why? Well, there are tons of factors to point out, but the funding is always a game-changer.
 
You read that right! Funding is always an issue when starting a business unless you have enough funds in your bank to use as your startup capital.

Now, suppose you do not have enough funds to start the business. What other options do you have in hand?

This is indeed not an easy question to answer, but there are always possible options you can try on.

Learn your alternatives and everything you need to know regarding acquiring a business loan in the Philippines in this article.

Table of Contents

  • What is a business loan?
  • The Difference Between Business, Consumer, and Personal Loans
  • How to qualify for a business loan in the Philippines?
  • Basic Business Loan Requirements
  • Four Types of Business Loans in the Philippines
  • Loan Repayment Tips
  • 7 Considerations in Getting a Business Loan
  • Other Loan Options
  • Key Takeaways

There are quite a few things to discuss, so let’s get started. 

What is a business loan?

Like other types of loans, a business loan is granted to any qualified applicant to fund a business venture.

Any startup business needs funding to begin operations and start earning a profit. And if having your fund is not an option, then opt to get a loan. 

Most banks and financial institutions offer business loans at fixed interest rates, and you just need to choose the best provider you think will best suit your repayment needs.

For a loan to work, there must be a borrower and lender. In your case, you are the capital borrower, and the bank or other financial institution is the lender. 

After a careful assessment of your loan application, the lender will decide whether to grant you the loan or not.

If you are lucky, you can be approved after a couple of days, but if not, there are several reasons why that happened.

At times, it may be because of your poor credit history resulting in a low credit score. Hence, it is best to build a good credit history over time as it can boost your chances of getting approved all the time.

Moreover, your current financial status is also a factor, so make sure you are employed or have another source of funds to present when applying for the loan. It assures the lender that you can pay the debt off.

The Difference Between Business, Consumer, and Personal Loans

There are so many types of loans, and the ones related to the business industry include business, consumer, and even personal loans.

But what are these loans, and how do they differ from each other?

Business Loan

The purpose of a business loan is to fund a business venture. Most of the time, it may be for the sole purpose of having a startup capital.

Moreover, if it is not the case, you may use it for business expansion or help pay for operating expenses.

Compared to other loans, a business loan offers higher loanable amounts, but it has more documentary requirements.

This is because of the larger funding required to set up the business and get going.

Consumer and Personal Loan

A consumer loan is a general type of loan. This means house, auto, or even personal loans.

In other words, you can always apply for any of these loans for personal consumption or if you need to find a way to refinance existing debts.

So, yes! If you are wondering why consumer and business loans are placed in the same category, then you just had the answer.

The Interest Rates

Now, it is time to take a look at the interest rates.

Typically, a personal loan’s interest rate is higher than a business loan. This is usually associated with the fact that it is used for a private matter rather than investing it for a business that can guarantee better returns.

Lenders consider personal loans as a risk because the purpose itself gives no gain in the long run.

On the other hand, business loans have a longer and more thorough application process with stricter eligibility requirements. This is why lenders have more confidence in business loan borrowers to pay off the entire loan on time, especially if it has lower interest and a longer repayment period.

How to qualify for a business loan in the Philippines?

The qualifications needed for a business loan in the Philippines are straightforward. 

All banks and financial institutions have different eligibility criteria, but the most common ones are the following:

  • Must be a Filipino citizen aged 21 but not older than 65
  • Should have an SEC-registered or DTI-registered business
  • At least three years of profitable business operations records
  • Must meet a minimum annual gross sales
  • Good credit standing (history and score)

Basic Business Loan Requirements

Now, what about the whole business loan requirements?

For sure, there are things that you should be aware of but do not worry. Here is a quick list you can check.

  • DTI or SEC Certificate
  • Valid Government ID (Passport, Driver’s License, TIN ID, PRC ID, Postal ID, or UMID)
  • Proof of Business Billing Address
  • Mayor’s Permit
  • Lease Contract
  • BIR Certificate of Registration
  • Photocopy of audited financial statements
  • Business background or company profile
  • Accomplished loan application form

Four Types of Business Loans in the Philippines

Unknown to many, there are other types of business loans in the Philippines. It does not come in one broad category only.

Secured Business Loan

When it comes to secured business loans, it means you need collateral. 

Most of the time, it can be real estate properties and bank deposits, so the lenders have something they can claim if the borrower fails to pay the loan amount.

Since there is collateral, the lenders are always at ease. This is why most secured business loans have lower interest rates and longer terms.

Moreover, it guarantees a high loan amount compared to the unsecured one. At the same time, be mindful of the fees associated with secured business loans, such as appraisal fees and collateral registration fees.

Here are some banks and institutions offering secured loans in the Philippines, and the collaterals accepted.

BPI Family Ka-Negosyo Loanlowers
Residential or commercial property/Bank deposit or investment

Metrobank SME Business Loans
Real estate mortgage; Bank deposit or placement

OWWA Loan (for OFWs)
Real estate property or any loan security accepted by the bank

PSBank SME Loans
Residential, commercial, or industrial property; Cash deposits

Security Bank SME Business Mortgage Loan
Residential, commercial, or mixed-use property; Hold-out deposit

SSS Business Development Loan Facility / SSS ASENSO    
Any collateral accepted by the SSS and partner bank

Unsecured Business Loan

As the name suggests, this kind of loan guarantees an approved loan without collateral.

Sounds great, but it has downsides. It has higher interest than the secured loan, and applying for one is a tedious process.

Moreover, it has shorter loan terms and low loan amounts because it is a risk.

Furthermore, you need to understand that most private lenders that provide unsecured business loans have lower interest-only, but only a few major banks have this type of business loan.

For banks, BPI is known for offering an unsecured loan under the BPI franchising loan. If it is not an option, consider reputable private businesses such as First Circle, Esquire, or Acudeen. 

Here are more details about the BPI franchising loan and another unsecured option in the Philippines.

BPI Family Ka-Negosyo Franchising Loan (No Collateral option)

  • Loan Amount - Minimum of PHP 100,000 or 60% of total franchise investment
  • Loan Term - 1 – 3 years
  • Interest Rates - Prevailing market interest rates
  • Repayment Mode - Straight amortization

Security Bank SME Business Express Loan

  • Loan Amount - PHP 1 million – PHP 5 million
  • Loan Term - 12, 18, 24, or 36 months
  • Interest Rates - Monthly add-on rates of 1.4% to 1.85% depending on the loan term
  • Repayment Mode - Monthly amortization

Credit Line

A credit line is a type of short-term loan that gives quick access to money on demand.

With this kind of financing, you have greater financial control because the interest grows only when you purchase against the credit line.

If you are wondering if this is right for your business, you need to understand that it is ideal only for short-term or working capital financing.

As for the loan amount, borrowers can borrow from PHP 500,000 to PHP 20 million against a line of credit.

Here are some of the credit line options for Filipino entrepreneurs.

BPI Family Ka-Negosyo Loan

  • Loan Amount - Depends on results of credit evaluation
  • Loan Term - 1 year, renewable (subject to credit evaluation)
  • Interest Rate - Prevailing market interest rates
  • Repayment Term - for the interest: monthly amortizations; the principal: payable anytime during the credit line term.

PSBank SME Business Credit Line

  • Loan Amount - Minimum of PHP 2 million (with real estate property as collateral) or PHP 500,000 (with bank deposit as collateral)
  • Loan Term - 1 year, renewable yearly
  • Interest Rate - Competitive
  • Repayment Term - Minimum amount due plus interest every 10th of the month while the principal is payable anytime during the credit line term

Metrobank SME Term Loan

  • Loan Amount - PHP 1 million - PHP 20 million
  • Loan Term - 1 year, renewable yearly but subject to the bank's approval
  • Interest Rate - Competitive
  • Repayment Term - the interest comes in monthly amortizations while the principal can be paid in full upon promissory note maturity (30 - 180 days)

Term Loan

A term loan helps entrepreneurs to fulfill their short or long-term business fund needs.

It is ideal for small business owners who want to have more manageable loan repayment options.

Again, this is fit for both short and long term business goals, especially if it is intended for the following:

Term loans are ideal for short-term or long-term funding for the following purposes:

  • New equipment procurement
  • Business expansion
  • Construction or renovation
  • Additional capital
  • Loan for a franchise business

Here are some term loan options in the Philippines.

SSS ASENSO

  • Loan Amount - Maximum of PHP 5 million
  • Loan Term - Short-term: 1 year while the long-term can run for up to 5 years
  • Interest Rate - Prevailing SSS rates
  • Repayment Term - Monthly amortization

SSS Business Development Loan Facility

  • Loan Amount - the amount depends on the lowest of the following: 1) Requested loan amount, 2) Total project cost, 3) Loan value of the collateral, 4) PHP 500,000
  • Loan Term - Up to 15 years
  • Interest Rate - Prevailing SSS rates
  • Repayment Term - Monthly, quarterly, semi-annual, or annual amortizations

BPI Family Ka-Negosyo Loan

  • Loan Amount - Minimum of PHP 500,000
  • Loan Term - 1 to 10 years
  • Interest Rate - Prevailing market interest rates
  • Repayment Term - Monthly or quarterly amortizations

Metrobank SME Term Loan

  • Loan Amount -  PHP 1 million – PHP 20 million
  • Loan Term - Short-term: Up to 360 days while the long-term is 2 – 7 years
  • Interest Rate - Competitive
  • Repayment Term - Monthly or quarterly amortizations

OWWA Loan

  • Loan Amount -  PHP 100,000 - PHP 2 million
  • Loan Term - Up to 7 years
  • Interest Rate - 7.5% fixed for the entire loan duration
  • Repayment Term - Monthly amortizations

PSBank SME Term Loan with Prime Rebate

  • Loan Amount -  Minimum of PHP 2 million
  • Loan Term - Up to 7 years
  • Interest Rate - Competitive
  • Repayment Term - Monthly amortizations

Security Bank SME Business Mortgage Loan

  • Loan Amount -  PHP 1 million - PHP 20 million
  • Loan Term - 1 - 10 years
  • Interest Rate - 7% - 10% (depending on loan term)
  • Repayment Term - Monthly amortizations

BDO SME Loan

  • Loan Amount -  PHP 1 million - PHP 20 million
  • Loan Term - 1 - 10 years
  • Interest Rate - Competitive
  • Repayment Term - Monthly amortizations

Loan Repayment Tips

Paying for your loans is never easy, so here are a few tips to allow you to increase your margin for error. 

Create a budget

Ask yourself always what is the best way to pay your due. You can issue a post-dated check or auto credit your payment to ensure it will be delivered on time.

It is like adding it to your budget. It’ll help you be on track. Always factor in the business’s current situation, and if it is hard to pay on time, inform your lender so they can give you a new payment plan.

This will help you avoid a bad payment history.

Know the late payment policy

You need to come to terms that there’s a good possibility that you won’t be able to make your payments.

Hence, it is best to have a clear understanding of your lender’s late payment policy so you can plan accordingly and make the necessary adjustments to your finances and business operations. 

Keep lines of communication open

Again, if you cannot pay on time, always inform your lender. Having an open line of communication is a great way of showing them that you are not running away from your responsibility. 

You want to build trust all the way, and communicating with them is the best way to do this.

8 Factors in Getting a Business Loan

Regardless of what kind of loan is the best fit for your business, it matters to check the following factors and utilize them in your decision-making process.

1. Define the Purpose

If you plan to get a loan for no apparent reason, then give it a second thought. You always need to have a definite reason why you want a loan.

Ask yourself, what do you need the money for? Is it for a short-term need like buying inventory and supplies? Is it intended to meet the seasonal demands of the business? Or are you planning to expand the business?

Your loan should fit the purpose, so always be clear about your goals from the beginning.

2. Set a Loan Amount

Having the right amount in mind will help you get a loan that you can pay off.

Although there is no guarantee that the amount you have in mind will be granted by the lender, having that desired amount helps you manage your expectations.

Remember that loanable amounts vary according to the type of loan and the lender. For example, most secured business loans have higher loan amounts than unsecured loans. This is because of the collateral. The higher the value of your collateral, the better your chances of qualifying for a higher loan amount.

At the same time, if you plan to qualify for a bigger loan, then it is best to apply to banks than government agencies and private lenders that usually have offer low loan amounts.

3. Determine the Funding Method

Also, one thing you need to consider is the way you want to get your loan proceeds.

Do you want to receive it as a lump-sum amount? Or is it better to have the money only when you need it?

Regardless, just remember that business loan types largely differ in how the loan proceeds are released to the borrower.

4. Negotiate the Loan Term

The loan term refers to the number of months needed to fulfill the whole repayment of the amount.

To answer this, ask yourself, how long can you realistically pay the business loan? Is a year enough? If not, then be honest with the lender. Tell them ahead if there is any way to have a longer loan term.

However, you need to understand that having a longer loan term means higher interest over time. But, at least, it can guarantee the lender that the amount can be paid, and on your side, you will not be stressed to pay beyond what you are capable of.

5. Check the Payment Methods

Everyone goes digital these days and having payment methods that utilize digital platforms would be great.

6. Ask for the Repayment Mode

Ask yourself what mode of loan payment will work better for you. Are you more comfortable paying for it fixed, quarterly, or monthly?

The right choice depends on the cash flow of your business, so it is always subjective to your situation.

Just hope that you can do fulfill this all the time.

7. Define the Collateral

If you are going to get a secured loan, ask yourself what valuable assets you currently have.

Do you have a valuable asset you are willing to put up as collateral? If yes, is it an equivalent or with a higher value than the loan you have in mind?

8. Calculate the Interest Rate

It is undeniable that you want to get the best business loan at the lowest rate possible.

But it can be quite tricky because all interest rates depend on the lender’s prevailing rate, the loan term, and type.

For example, lenders charge higher interest rates on unsecured business loans than secured loans.

Other Loan Options

If you are searching now for other loan options and where to get them, check out this list.

Citibank Personal Loan

  • Fast approval time in as fast as 24 hours
  • Loan amount of up to P2 million
  • Flexible payment terms of up to five (5) years

TALA Personal Loan

  • Fast approval time in as fast as 24 hours
  • Quick cash loan up to P15,000
  • 24/7 application using an Android phone

SB Finance Personal Loan

  • Get approved within five banking days
  • High loan amount of up to P2 million
  • Flexible payment terms of up to 36 months

EasyRFC Multi-Purpose Loan

  • Fast approval time in as fast as 24 hours
  • High loan amount of up to P150,000
  • Payment term of up to 12 months


Key Takeaways

Alright!

These are everything you need to know about getting a business loan in the Philippines.

While the idea of getting a loan gives you relief, you should not take this lightly, as the burden of paying a loan is not always easy. You need determination and commitment to make sure that you can finish paying the term without any problem.

Moreover, it always pays off to do your research first before getting any loans to know what you are getting into.

We are hoping that you can secure the best loan that fits your needs and financial capability.

Check out more franchising and business-related articles only here at franchisemarket.ph.

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