Quick Guide: How To Choose Business Loan Philippines
Are you looking for a comprehensive guide on a business loan in the Philippines? Worry no more.
We have the answers you’re looking for. We listed the top vital points to consider when taking out a business loan Philippines.
Starting a new venture always seems to be intimidating. You must know every nook of the business. It starts from your concept, supply and demand, up to the laws that govern your industry. Most importantly, you have to be financially capable. Or else, you’ll be preparing your business to its doom.
Luckily, you can explore more options with business loans in the Philippines.
Table of Content
What is Business Loan in the Philippines?
How to Get a Business Loan in the Philippines?
What are the Business Loan Requirements Philippines?
Where to Loan for Small Business in the Philippines?
6 Practical Tips when Applying for Business Loan Philippines
- Determine your Loan Purpose
- Calculate the Loan Amount
- Figure Out the Loan Term
- Review the Interest Rate
- Evaluate Repayment Scheme
- Weigh the Need for Collateral
- How long will I wait for my business loan approval?
- What should I do if my business loan application gets rejected?
- What happens if I fail to repay my business loan?
- Can I take out a business loan Philippines and use it for other financial needs?
- Can I still apply for a business loan even if I have no credit history?
What is Business Loan in the Philippines?
In the Philippines, a business loan refers to a financial product offered by banks, financial institutions, or government agencies. It assists you in obtaining funds for your business-related expenses. Its design provides capital for various business needs, such as expansion, working capital, purchasing equipment, inventory financing, or even starting a new business.
Business loans Philippines typically have specific terms, conditions, and eligibility criteria set by the lender. As a result, your loan amount, interest rates, repayment periods, and collateral requirements vary. It all depends on your lender and the specific loan product you need.
To apply for a business loan, you need to provide relevant documents. It includes your business plan, financial statements, income tax returns, bank statements, and proof of identification. Lenders assess the creditworthiness and viability of your business before approving the loan.
Different types of business loans are available in the Philippines. These are term loans, revolving credit lines, equipment financing, and government-sponsored loans. Each type serves different purposes. Plus, it has its own set of requirements. Therefore, you must familiarize yourself with these before you proceed with your loan application.
Furthermore, thorough research and comparing loan options from different lenders is necessary. It guides you to find the most suitable terms and conditions for your business needs. Additionally, it ensures that you have a solid repayment plan in place. This way, you can manage your loan responsibly and avoid any financial difficulties in the future.
How to Get a Business Loan in the Philippines?
The business loan application process varies based on the lender and type of loan you prefer. Below are the terms you need to know before taking out a loan.
Business Loan with Collateral
Secured business loans are loans where the borrower pledges collateral to secure the loan. Your collateral serves as a form of security for the lender. It lowers the risk associated with the loan. If you default on your loan, the lender has the right to seize and sell the collateral to recover the outstanding debt.
Key Aspects of Secured Business Loans
Collateral
Collateral can be your tangible assets. For example, it can be your real estate, equipment, inventory, vehicles, or accounts receivable. The acceptable assets depend on the lender’s policies and the nature of your business. Afterwards, the value of the collateral will be assessed by the lender to determine the maximum amount you can loan.
Loan Amount and Terms
A secured business loan may increase your chances of obtaining a higher loan amount. Also, it may provide you with more favorable terms. The loan amount will typically be a percentage of the collateral’s appraised value, known as the loan-to-value (LTV) ratio. In addition, the interest rates, repayment period, and other loan terms will be influenced by the collateral provided.
Collateral Evaluation
Some lenders require a professional appraisal or valuation of the collateral to determine its worth. The evaluation ensures that your collateral’s value aligns with the loan amount requested. The borrower usually bears the appraisal cost.
Collateral Documentation
A business loan with collateral requires documentation related to the collateral. These are property titles, registration papers, or ownership certificates. It establishes your ownership and provides evidence of the collateral’s value.
Risk and Default
Collateral provides security to the lender. However, it also carries risks for the borrower. If you fail the loan repayment, your lender can hold and sell your collateral. On the other hand, it helps them to recover the outstanding debt. That’s why assessing your business’s financial health and repayment capabilities is crucial. It saves you from defaulting on the loan and potentially losing the collateral.
Repayment Responsibility
As a borrower, fulfilling your repayment obligations on time and according to the agreed terms is vital. Being negligent can result in default, leading to collateral loss. Therefore, it is essential to have a solid repayment plan in place before acquiring a secured business loan.
Assess your business’s financial situation, evaluate the risks and benefits, and carefully review the terms and conditions before securing a business loan with collateral. Additionally, seeking professional advice from legal and financial experts can provide valuable guidance in the decision-making process.
Business Loan without Collateral
An Unsecured Business Loan is a loan where the borrower does not need to provide collateral to secure the loan. Often, getting approved is based on the borrower’s creditworthiness, financial history, and business credentials.
Key Aspects of Unsecured Business Loans
No Collateral
Unsecured loans do not need pledge-specific assets as collateral. As a result, you don’t have to risk any property if you default on the loan. Instead, the lender evaluates your creditworthiness and financial health to determine the loan eligibility.
Loan Amount and Terms
The loan amount for unsecured business loans is generally lower compared to secured loans. Lenders may offer an amount based on your business’s financial performance and repayment ability. However, the interest rates are often higher than secured loans due to the increased risk for the lender.
Eligibility Criteria
Lenders with unsecured business loans assess several factors. It includes your personal and business credit history, revenue generation, profitability, time in business, and industry risk. In addition, they may require you to provide business financial statements, bank statements, tax returns, and other documentation to evaluate your creditworthiness.
Application Process
Applying for an unsecured business loan needs detailed information. These are all about your business, like financial statements, business plans, tax returns, and other relevant documents. The lender will review your application, assess your creditworthiness, and decide based on their evaluation.
Higher Interest Rates
Due to the higher risk involved, unsecured business loans often come with higher interest rates. Lenders compensate for the increased risk by charging a higher cost of borrowing. Consider the interest rates and associated fees to ensure the loan is financially viable for your business.
Repayment Terms
A business loan without collateral usually has fixed repayment terms. It includes your monthly installments over a specified period. The repayment period varies based on your lender and the loan amount. It’s essential to understand the repayment schedule. Also, ensure that your business’s cash flow accommodates monthly payments.
Risk and Responsibility
Unsecured loans carry more risk for lenders. There is no collateral to mitigate their potential losses. As a borrower, you are responsible for repaying the loan per the agreed-upon terms. Only timely payments can positively impact your credit score. Worse, it may result in legal action by the lender.
Evaluating your business’s financial stability, repayment capacity, and the terms and conditions offered by different lenders is crucial. Always compare loan options and seek professional advice. It helps you make an informed decision that aligns with your business needs.
Term Loan
A term business loan is a loan that provides a fixed amount of funds to a borrower for a specific period. The loan term is common in financing for businesses. Often, it is used for business expansion, working capital, equipment purchase, or inventory management.
Key Aspects of Term Business Loans
Loan Amount
Term loan allows the borrower to receive a lump sum of money upfront. The determination of your loan amount is based on various factors. These are your creditworthiness, financial history, business performance, and the lender’s policies.
Loan Term
A term loan has a fixed repayment term, typically specified during loan approval. It ranges from a few months to several years, depending on the lender and the borrower’s requirements. For example, standard loan terms for business loans can be one, three, five, or ten years.
Interest Rates
Term business loans have fixed or variable interest rates. Fixed interest rates have the same rate throughout the loan term. It provides you with stability in monthly payments. Meanwhile, Variable interest rates can fluctuate based on market conditions. Often, it changes your monthly payment amounts.
Collateral Requirements
The lender’s policies and the borrower’s credit profile play a vital role. For example, some term loans require collateral to secure the loan. However, others may be available without collateral.
Application and Approval Process
Applying for a business term loan needs you to provide documentation, like financial statements, tax returns, business plans, bank statements, and other relevant information. The lender evaluates the borrower’s creditworthiness and business viability before approving the loan.
Repayment Structure
Term loans generally require monthly or quarterly repayments with both principal and interest portions. It depends on the loan amount, interest rate, and loan term. Longer terms often come with monthly payments lower than others. However, you may have higher overall interest costs.
Banks, credit unions, and online lenders widely offer term business loans. First, compare loan terms, interest rates, fees, and repayment structures from different lenders. Then, find the most suitable option for your business. Also, carefully review the loan agreement and understand all the terms and conditions before accepting any term business loan.
Credit Line Loan
A credit line business loan is also known as a revolving credit facility or a business line of credit. The loan provides businesses with access to a predetermined amount of funds. You can borrow and repay repeatedly within a specified credit limit. It offers you flexibility and allows you to draw funds as needed. Somehow, it is similar to a credit card.
Key Aspects of Credit Line Business Loans
Credit Limit
A lender establishes a maximum credit limit. It represents the total amount of funds your business can borrow. The basis of credit limit is your business’s creditworthiness, financial history, and revenue-generating capacity.
Borrowing and Repayment
A credit line business loan allows you to borrow funds as needed. But it is up to the established credit limit. Once funds are borrowed, they can be repaid in full or in installments. As the funds are repaid, they become available to be borrowed again, allowing for revolving credit.
Interest and Fees
Your interest charge is only for borrowed funds, not the entire credit limit. The rate on a credit line loan can be fixed or variable. It all depends on the terms agreed upon with the lender. In addition to interest rate, you are responsible for paying fees, such as annual maintenance or transaction fees, for each drawdown.
Collateral Requirements
A credit line can be secured or unsecured. Secured credit lines require your business assets or personal assets. Unsecured credit lines do not require collateral but have stricter credit requirements and higher interest rates.
Repayment Structure
The repayment structure for a credit line business loan varies. It depends on your lender and your agreed-upon terms. Minimum monthly payments include interest charges and a portion of the principal balance. You can continue to borrow and repay as needed if you remain within the credit limit.
Renewal and Review
Credit line loans often have a specific term, such as one or two years. Afterward, the loan may need to be renewed or reviewed by the lender. During renewal, your lender reassesses your creditworthiness and financial situation to determine whether to extend the credit line.
Credit line provides businesses with ongoing access to funds. It offers flexibility to manage your cash flow and meet your financial needs as they arise. Before entering into a credit line business loan agreement, consider the terms and conditions, including interest rates, fees, and repayment terms.
What are the Business Loan Requirements Philippines?
The specific requirements for a business loan in the Philippines may vary. It always depends on the lender and the type of loan you are applying for. However, here are the primary documents you must prepare.
Business Registration
You should have a registered business in the Philippines with all the necessary permits and licenses.
Business Plan
A comprehensive business plan outlining your company’s goals, strategies, financial projections, and repayment plans is essential. In addition, it helps your lender assess your business’s viability and potential profitability.
Financial Statements
You will need to provide financial statements about your business. These are your balance sheets, income statements, and cash flow statements. Note that these documents must be prepared by a certified public accountant (CPA). Also, it must reflect your business’s financial performance and stability.
Collateral
It depends on the loan type and amount you borrow. Lenders may require collateral as security. Collateral can be in the form of property, equipment, inventory, or other valuable assets.
Personal and Business Credit History
Lenders evaluate both your personal and business credit history to assess your creditworthiness. A good credit score enhances your chances of loan approval and may lead to more favorable terms.
Bank Statements
Bank statements for the past six months or more give lenders insight into your business’s cash flow and financial transactions. It helps them evaluate your ability to generate revenue and manage finances.
Legal Documents
You must provide legal documents such as identification cards, proof of address, and tax identification numbers (TIN). It includes both the business and its owners or directors.
Loan Purpose and Repayment Plan
You must clearly explain the loan’s purpose and how it will benefit your business. Additionally, you must provide a repayment plan. Finally, it must outline how you intend to repay the loan within the agreed terms.
Industry-specific Requirements
Lenders may request additional documents or requirements specific to your industry. For example, if you’re in the food industry, you may need to provide permits and clearances related to food safety.
These documents are general guidelines. Be reminded that each moneylender may have its specific criteria. It’s best to inquire directly with the lender or financial institution you plan to approach for a business loan. This way, you get precise information about their requirements.
Where to Loan for Small Business in the Philippines?
Banks are not your only choice to apply for your start-up business. You can have access to various financial assistance. Check out your possible option below.
Government Loans for Small Business Philippines
Several government programs and institutions offer loans and financial assistance to small businesses in the Philippines. Here are some notable government loan programs for small businesses in the Philippines.
DTI & SB Corp Business Loan
Small Business Corporation is a government-owned and controlled corporation under the Department of Trade and Industry (DTI). It offers various loan programs specifically designed for SMEs in different sectors. Examples include the COVID-19 Assistance to Restart Enterprises (CARES) program and the P3 (Pondo sa Pagbabago at Pag-asenso) program.
When to Use DTI & SB Corp
Bayanihan Cares 2 Program is for MSMEs affected by the devastating pandemic and quarantines. The P3 Program is for existing micro-businesses worth Php 3M and below assets and 9 or fewer employees.
Loan Amount
Bayanihan Cares 2 offers Php 10,000 to Php 5,000,000 based on your asset size and annual business sales. On the other hand, P3 Program offers Php 5,000 to Php 200,000, but it still depends on the business size.
Loan Term
Bayanihan Cares 2 has 1 to 4 years, depending on your loan amount.
P3 has a maximum of 18 months for a Php 50,000 loan amount and a maximum of 30 months for over a Php 50,000 loan amount.
Interest Rate
Bayanihan Cares 2 is a zero interest rate and no collateral, while P3 has a 2.5% monthly interest rate.
SSS Business Loan
Social Security System holds an SSS Business Loan Program to help aspiring entrepreneurs. It enhances your business productivity so you can grow your earnings.
When to Use SSS Business Loan in the Philippines
SSS Business Development Loan is for your business diversification and expansion. SSS Asenso is Access to Smal Enterprises to Sound Lending Opportunities. It provides better access to funding for every SMEs needs.
Loan Amount
SSS Development Loan offers the lowest amount based on the following: Php 500,000, requested loan amount, collateral value, and total project cost. Meanwhile, SSS Asenso has a maximum loan amount of Php 5,000,000.
Loan Term
SSS Business Development is up to 15 years. On the other hand, SSS Asenso has short-term for 1 year and long-term for up to 5 years.
Interest Rate
The interest rates depend on the prevailing SSS rates.
OWWA Business Loan
OWWA Loans are for OFWs who want to become business owners but need more funds for capital. Suppose you were working overseas, whether, by sea or land, you could receive the financial assistance you need. So you can start a profitable venture and generate income in no time.
When to Use OWWA Business Loan
OFW Reintegration Loan Program is under the LandBank of the Philippines. Although it is available for franchise businesses, you can use it for agricultural and non-agricultural production.
Loan Amount
Php 100,000 to Php 5,000,00
Loan Term
Short-term lasts up to 1 year, while Term loans must not exceed 7 years.
Interest Rate
Fixed 7.5% p.a. for the entire loan duration
Best Banks for SME Loan Philippines
Several banks in the Philippines offer SME (Small and Medium Enterprise) loans. Each bank for vary in interest rates, loan terms, eligibility criteria, customer service, and the specific needs of your business. Here are some well-known banks in the Philippines for their business loan offerings.
Banco de Oro Business Loan
Business Loan Philippines BDO offers secured SME Loan programs, such as the SME Term Loan and SME Ready Check Credit Line Loan. Also, it provides a wide range of financing options like SME Short-Term Loan and Working Capital Loan.
When to Use BDO Business Loans
If you want an aggressive expansion that requires a large lump sum amount, SME Term Loan is what you need. You can use it to purchase new assets like machines and equipment, real estate properties, renovations, repairs, and construction of business facilities.
If you’re looking for more extensive operations funding to augment working capital, opt for SME Ready Check. It involves the purchase of inventory and supplies for seasonal and bulk orders.
Loan Amount
Php 1,000,000 to Php 20,000,000
Loan Term
Up to 10 years
Interest Rate
Utilize their online loan calculator
Bank of the Philippines Islands Business Loan
BPI offers different secured SME loan products, including the BPI SME Business Credit Line, BPI SME Term Loan, and BPI SME Negosyo Credit. They have flexible loan terms and cater to various industries and business sizes.
When to Use BPI Business Loan Philippines
BPI SME Term Loan is ideal for supplier payments and equipment purchases. Also, it is best for additional working capital, capital expenditures, and expansion.
BPI SME Credit Line finances your on-spot and unplanned expenses. It bridges your working capital requirements for the business.
Loan Amount
Minimum of Php 300,000
Loan Term
SME Term Loan has a maximum of 5 years, while SME Credit Line is 1 year renewable.
Interest Rate
Both BPI Business Loans have a prevailing market interest rate.
Land Bank of the Philippines Business Loan
Landbank offers loan programs tailored for SMEs. These are the Term Loan Facility, Working Capital and liquidity Facilities, Exporters Production Support Facilities, and Farm Tourism Financing Program. They specialize in catering to the financing needs of SMEs in various sectors.
When to Use LandBank Business Loans
Take out the Term Loan Facility if you need funding for your business capital expenditures. Working Capital and Liquidity Support is your best choice for daily business operations and financial needs. If your business focuses on export operations, apply for Exporters Production Support. However, if your venture develops farn tourist camps and activities, have Land Bank’s Farm Tourism Programming.
Loan Amount
Php 1,000,000 to Php 20,000,000
Loan Term
Up to 5 years
Interest Rate
The interest rate depends on the amount borrowed. You may check the bank’s official website for reference.
Metrobank Business Loan
Metrobank provides SME loans to support businesses’ growth and expansion plans. Their loan products are Metrobank SME Term Loan, Metrobank SME Short-Term Loan, and Metrobank SME Credit Line. Also, Metrobank offers customized loan packages based on specific business needs.
When to Use Metrobank Business Loan
If you want to jumpstart your business operations, Metrobank SME Term Loan is what you need. It has Puhunan Loans that help you begin construction-related projects, facility acquisition, general merchandise trading, and product development.
In addition, SME loans of Metrobank approve agri-business loans. Therefore, you can proceed with your livestock and grains trading and food processing.
Moreover, you can have your store with franchise business loans. You can acquire the franchise package of your chosen business and its pre-operating capital.
Loan Amount
Php 500,000
Loan Term
Short-term lasts up to 360 days, while Long-term lasts 2 to 7 years.
Interest Rate
Offers competitive interest rates in the market.
Security Bank Business Loan
Security Bank offers SME loans to help businesses meet financing requirements. They have various loan products, such as the Security Bank SME Business Express Loan, SME Business Express Revolving Credit Line, and SME Business Express Credit Line. In addition, they provide personalized solutions and competitive interest rates.
When to Use Security Bank SME Business Express Loan
If you need financing for unsecured short-term needs, SME Business Express Loan is what you need. It is tailor fit to any of your business’s growing needs. For example, your cash for day-to-day operations, office spaces, and equipment.
Loan Amount
Php 1,000,000 to Php 5,000,000
Loan Term
Up to 36 months
Interest Rate
1.5% to 1.95%, but it depends on the loan term
UnionBank Business Loan
UnionBank offers an unsecured SME loan that assists your business growth and development. Their loan offerings include the UnionBank SME Term Loan, UnionBank SME Revolving Credit Line, and UnionBank SME Commercial Real Estate Loan. In addition, they focus on providing flexible loan terms and quick approval processes.
When to Use Union Bank Business Loan
If you need extra funding for inventory and payroll, capital investment, equipment, and infrastructure expenses, take out any UnionBank SME loans.
Loan Amount
Php 50,000 to Php 1,000,000
Loan Term
1 year to 3 years
Interest Rate
3%
Choosing business loans from banks requires thorough research and comparing loan products, interest rates, fees, and terms offered. Also, consider other factors such as loan eligibility requirements, collateral requirements, loan repayment options, and customer reviews. In addition, you should directly contact the banks or visit their websites. This way, you get the most up-to-date information on their loan offerings. Plus, you can discuss your specific business needs with their representatives.
Private Money Lending Company Loan Philippines
Private money lending companies in the Philippines specialize in providing business loans to individuals and companies. These companies offer alternative financing options outside of traditional banks. Here are some well-known private money lenders that provide business loans.
First Circle
The reputable lender provides unsecured working capital loans to small and medium enterprises. You can use its digital platform and leverage technology for fast and accessible business financing options.
When to Use First Circle
Revolving Credit Line suits you if you need to purchase orders and issue invoices. It helps you in buying additional inventory, especially during peak seasons. Also, it aids in your finances for extending credit to your customers.
Loan Amount
Php 250,000 to Php 10,000,000
Loan Term
Renewable for every 6 months up to 1 year
Interest Rate
1.39% per month, depending on the business profile, loan amount, term length, and borrower’s payment frequency.
In addition, First Circle offers the best price guarantee for any SME with non-collateral financing from a different lender. It can beat their price by 10%.
Esquire Financing
The trusted moneylender offers unsecured business loans and factoring services to SMEs. In addition, they provide financing solutions tailored to the needs of various business industries.
When to Use Esquire Financing
It is best used when you opt to expand your business and additional working capital. You can apply for it if you need funding for retail, manufacturing, and services without collateral.
Loan Amount
Php 100,000 to Php 10,000,000
Loan Term
90 days to 360 days
Interest Rate
3.5% per month
Radiowealth Finance Company (RFC)
The legit lending company offers secured and unsecured business Term Loans. It is a non-bank organization that helps SMEs, including micro, small, and medium-sized businesses.
When to Use Radiowealth Finance Company
You may apply for an RFC business loan for specific equipment purchases. It may range from appliances to farm equipment and trucks. Some of its loan products are:
- Truck Loan
- Farm Equipment Loan
- Appliance Loan
- Machinery and Equipment Loan
- Working Capital Loan
- SME Micro Loan
Loan Amount
Php 10,000 to Php 3,000,000
Loan Term
3 months to 18 months
Interest Rate
3.7% per month. You may also check their website for their online loan calculator.
Cash Mart Philippines
Cash Mart is an SEC-registered moneylending company that assists entrepreneurs. Whether you are a starting venture or a fast-growing business, you can borrow funds. In addition, you can take out a loan in the comfort of your home as long as you are eligible.
When to Use Cash Mart Philippines
You can borrow money in Cash Mart for personal needs and business development. You need to choose the necessary loan amount.
Loan Amount
Up to Php 50,000
Loan Term
Up to 60 days, but it varies depending on the loan amount
Interest Rate
0.8% to 3.5%
When considering private money lending companies, carefully review their loan terms, interest rates, fees, repayment options, and loan eligibility criteria. Assess the lending company’s credibility and reputation by checking customer reviews, conducting background research, and verifying their legitimacy with relevant government authorities like SEC. It’s advisable to shop around multiple private lending companies. This way, you can choose the best one that suits your business’s needs and offers favorable terms.
6 Practical Tips when Applying for Business Loan Philippines
You probably have a lender in mind. But before you get excited about the loan application, remember to do the following first.
Determine your Loan Purpose
First of all, why do you need to apply for a loan? There are various reasons why—the common loan reasons of business owners.
Business Expansion
Expanding the business is the peak goal of every entrepreneur. Therefore, most banks approve your loan applications if you aim to buy new land or real estate for a developing operation. No worries. It is acceptable if you’re just looking for a small working area.
However, be reminded that SME loans require collateral. In addition, consider the expansion if you can see that the business growth is on the right path.
Equipment Procurement
Other business owners opt for better equipment and facilities. For example, instead of applying for your loan business expansion, you opt for a smaller amount for purchasing equipment.
But still, keep in mind that you have to oversee the cost-benefit analysis. For example, is it practical for the business to buy a new tool now? Or will you stick to leasing your machinery for the long term?
Need More Working Capital
Is your business on the path to success, but you need to increase your funds for day-to-day operations? Then, you can apply for a term loan to meet your business’s daily needs.
However, be mindful of your decision. For example, taking out an SME loan to expand the business is riskier than borrowing money for working capital.
Upgrade Marketing Strategy
Marketing strategies have a pivotal effect on every business. You must always stay on trend and adopt new techniques to gain visibility and credibility. If you see this need, you’ll surely need more funds.
Investing in the latest software and technology, employee training, and hiring new staff is an expenditure. But if you can use it properly, you can gain more revenue in the future. You can talk to a trusted moneylender if you have a clear goal. In addition, you can better visualize where the loan cash will go.
Calculate the Loan Amount
Once you decide on the sole loan purpose, you can identify the estimated loan amount you need. Often, it varies on your lender and loan type. Here is a scenario.
Try applying for a business loan from banks and government agencies. You’ll notice that banks entertain more entrepreneurs than the latter. Nevertheless, don’t underestimate private lenders. Some of them, like Cash Mart, lend more.
In addition, if you need a higher loan amount, choose secured business loans. However, the value of your collateral significantly affects the quick online cash loan you’ll get. Therefore, if you offer a high-value property, you are qualified for a higher loan amount.
Calculating the loan amount needed is a crucial step. You have to consider the interest and repayments based on your sales and revenues. That’s why you must review the balance sheets beforehand. This way, you can have an overview of your business and whether you can cover monthly amortization.
Figure Out the Loan Term
Can you repay your loan within a year? Or will you need a more extended plan to cover the expenses required in your business? Your loan tenor can help you shorten your financial dilemma or prolong the agony of monthly repayments. Nevertheless, one of the deciding factors in this aspect is the business status.
Review the Interest Rate
Look for the lowest rate possible to get the best interest rate on your business loan. However, it is significantly tricky if interests vary for every lender. Also, you must consider the loan type, loan term, and your lender’s prevailing rate. For example, unsecured loans come with higher interest rates than secured loans.
You can narrow your options if you see the difference between effective interest rates and APR. Comparing these two provides a visible benchmark. However, lenders often advertise the loan interest rate only. The actual loan cost, your APR, includes everything charged to your loan.
Evaluate Repayment Scheme
Repaying your business loan involves adhering to the agreed-upon repayment terms and schedule set by the lender. Loan repayment is possible through the following.
Installment Payments
The most common repayment method which makes regular fixed payments, including both principal and interest. It comes in monthly, quarterly, or annual options. Your repayment schedule and the installment amount will be determined based on the terms agreed upon with the lender.
Automatic Debit Arrangement (ADA)
Some lenders may offer an ADA option. Your loan repayment is automatically deducted from your business bank account on the agreed-upon dates. It ensures timely payments and eliminates the need for manual transfers.
Post-Dated Checks (PDCs)
Another method wherein post-dated checks correspond to the scheduled repayment dates. The lender will deposit the checks on the respective due dates.
Online or Mobile Banking
Many banks and lending institutions offer online or mobile banking services. It allows you to repay a loan electronically. Also, you can transfer funds directly from your business bank account to the loan account. You may either use Internet banking platforms or mobile apps.
Over-the-Counter Payments
Some lenders may accept over-the-counter payments at their branches. Sometimes, they have authorized payment centers. You can physically visit the designated locations and make cash or check payments.
Online Payment Gateways
A lender may provide an online payment gateway where you can make electronic payments. For example, you can use debit cards, credit cards, or other online payment platforms.
Early or Lump Sum Payments
You may opt for early or lump sum payments if you have the financial capacity. It helps you repay the loan faster. But you must ask your lender first. Sometimes, doing so may result in no prepayment penalties or restrictions.
Weigh the Need for Collateral
Business loan Philippines often requires collateral for you to get approved. Although there are available loans that don’t require you to have one, it’s best if you have an asset ready. With a loan purpose in mind, you have an estimate of the loan amount you need. Therefore, look into the appraised value of your properties.
Borrowing money with high-value asset increases your chances of approval. Also, your on-hand property helps you explore more reputable lenders. Plus, a piece of your property decreases the loan risk. As a result, your online lending comes with lower interest rates.
On the other hand, if you have limited options as your collateral, you tend to settle for lending companies with complicated loan terms. In addition, you may get approved with a low loanable amount and potentially high-interest rates.
These are the typical scenarios for taking out a business loan from banks. Nevertheless, you can still look into private money lending companies. From there, you can decide whether or not to continue your loan application with your chosen lender.
Takeaway
A business loan Philippines plays a vital role in supporting entrepreneurs. If you are well-prepared throughout the loan application process, you can maximize your chances of securing the funding your business needs. Consider all available options carefully, meet the requirements, and maintain a strong credit profile. With careful planning and execution, you can leverage business loans to fuel your entrepreneurial journey. Cash Mart can be your best bet to fulfill your financial needs.
Frequently Asked Questions
How long will I wait for my business loan approval?
The duration for business loan approval varies depending on several factors. These are the loan provider, loan amount, credit history and financial standing, application completeness, and internal processes.
It is challenging to provide an exact timeline without knowing the specific details of your loan application. But generally, it can take a few days to several weeks for a business loan to be approved. Therefore, contacting potential loan providers directly is advisable to get a more accurate estimate based on your circumstances and their current processing times.
What should I do if my business loan application gets rejected?
Getting a loan rejection means something other than the end of your business aspirations. Instead, take it as an opportunity to improve your application and explore other avenues. Persistence, determination, and a well-prepared application can significantly increase your chances of securing financing for your business. Here’s what you can do.
- Understand the Reason
- Review Your Application
- Improve Your Credit Profile
- Seek Expert Advice
- Explore Alternative Financing Options
- Strengthen Your Business Plan
- Build Relationships
What happens if I fail to repay my business loan?
Failure to repay your business loan Philippines has serious consequences. Some potential outcomes of defaulting are late payment fees and penalties, negative impact on credit score, collateral seizure, personal liability, legal action, collection efforts, and difficulty obtaining future financing.
Always maintain open communication with your lender. If you are experiencing difficulties with your repayment, inform them beforehand. It helps in mitigating the potential consequences of your loan default.
Can I take out a business loan Philippines and use it for other financial needs?
It is advisable to use a business loan for its intended purpose. However, reading and understanding the specific terms and conditions of the loan will determine whether you can use the funds for other financial needs.
Can I still apply for a business loan even if I have no credit history?
Yes, applying for a business loan is possible even with no credit history. Your credit history can help demonstrate your creditworthiness to lenders. However, it is only sometimes a mandatory requirement. In addition, you must present your business’s strengths, such as a solid business plan, financial projections, industry experience, and the ability to generate cash flow. Documentation and information showcasing your business’s potential and ability to repay the loan can strengthen your application.
