Financial Literacy

Basic Requirements When Applying for a Business Loan – Philippines

This post is originally shared inside Traders Lounge Facebook group by Gandakoh in the hope of increasing financial literacy. This article includes some comments from TL members kind enough to share their knowledge.

Prepare the following documents when applying for a small business loan.
  • 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, Utility Bills)
  • DTI or SEC Certificate
  • BIR Certificate of Registration
  • Photocopy of audited financial statements
  • Business background/company profile
  • Accomplished loan application form

WHAT IS A TERM LOAN?

A term loan allows entrepreneurs to meet their short-term or long-term business funding needs while keeping their own funds intact. This is a great small business loan option for startup owners who want to make their loan repayments more manageable by spreading them out in regular installments.

WHAT IS A CREDIT LINE?

A credit line is a short-term loan that provides quick access to money on demand. It allows greater financial control, as the interest starts accumulating only when you purchase against the credit line. You pay the interest just on the amount that has been used.

WHAT IS A SECURED BUSINESS LOAN?

A secured loan for business requires collateral—such as real estate properties and bank deposits—that the lender will claim to recover its losses in case the borrower defaults on the loan.

The collateral reduces the risk for lenders, which is why secured loans generally have lower interest rates, longer loan terms, and higher loan amounts than unsecured loans. These features make a secured business loan affordable and suitable for startup businesses that need funding at a time when they’re just beginning to make profits.
 
For secured business loans, lenders charge several collateral-related fees such as appraisal fee and collateral registration fee.

With the exception of a few, term loans and credit lines in the Philippines are secured business loans.

WHAT IS AN UNSECURED BUSINESS LOAN?

As opposed to secured loans, unsecured business loans don’t require collateral and are more difficult to qualify for, especially for those with bad or no credit history. No-collateral business loans come with higher interest rates, shorter loan terms, and lower loan amounts than loans secured by collateral.

Private lenders typically provide unsecured business loans in the Philippines, while only a few major banks have this type of business loan. BPI, for example, offers a zero-collateral option only to those who wish to get a BPI franchising loan for Best List brand partners[2]. The big banks tend to focus on collateralized loans and it can be quite a difficult process to get approved for an unsecured business loan with a decent interest rate.

If you find yourself in this situation, consider reputable private businesses such as First Circle, Esquire, or Acudeen. While they have not reached the brand recognition of major banks yet, their processing time is often a lot quicker compared to some banks and depending on your company’s credit profile, their interest rates are sometimes even cheaper.

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