Financing a Business: 8 Funding Options to Look Into

Your business idea is very much like a car. No matter how flashy and beautiful it is, it won’t run without gasoline. In this context, that fuel is money. 

Whether you're setting up a startup or securing capital for business expansion, funding is no easy feat. There are a lot of routes to take, and it may feel overwhelming.

Each business funding method can affect how your operations will fare in the long run. This is why you need to be careful when weighing your options. 

With that, here’s a rundown of where and how to get capital for your business in the Philippines. We’ve also included the pros and cons of each funding method to help you decide on the best option.

What is Business Capital?

Looking up the meaning of capital for business? Simply put, business capital is the money needed to launch a business, run day-to-day operations, and sustain growth. 

Use it to make your business idea come to fruition from scratch. Or, if you're running a business already, acquiring capital can fund its growth—specifically for hiring more employees, purchasing new equipment, or expanding your product offerings, among other purposes.

How to Get Capital for a Business Launch or Expansion: 8 Funding Options in the Philippines

Here are the different ways to raise or generate capital for starting or growing your business:

💸 Bootstrapping

Also known as self-funding, bootstrapping lets you tap into your personal financial resources to source capital for a small business.

This may mean using your savings accounts or retirement funds. If you have stocks or mutual funds, you can withdraw them. You can also put savings from your side gigs toward your capital.

If you’re self-financing a business, you can also borrow from your family and friends. This is easy, especially if your loved ones believe in your idea. However, consider the pressure not only in terms of timely debt repayment but also your desire to not let them down.  

Bootstrapping Advantages

• Total control over your business since you’re funding it yourself
• Less pressure since you don’t have any investors to impress
• Saves time since the funds are already available
• Quick decision-making since you don’t have to go through a vetting process with higher-ups

Bootstrapping Disadvantages

• Risk running out of funds, which may result in operational failure 
• Slow growth, as funds may not be enough to hire people, buy equipment, and make operations efficient
• Decisions may be rife with biases since you don’t have experienced investors to guide you or play devil’s advocate  
• Pressure from family or friends if you borrow your capital from them; risk of strained relationships
• Tapping into your retirement funds early

Read more: What Small Business Ideas Can You Start in the Philippines?

💸 Business Loans

Looking for additional capital for business expansion? A business loan is a more sensible option than bootstrapping if you don’t want to use your personal resources, yet want to operate without the influence and input of investors and outsiders. Once you receive the proceeds, you and your partners are on your own. 

If you’re thinking about how to get capital for your business with a business loan, you have two choices: banks and lending companies. 

Banks such as UnionBank, Security Bank, LANDBANK, the Philippine National Bank (PNB), Robinsons Bank, and Bank of Commerce offer short-term and long-term business loans. 

Short-term loans are ideal for financing immediate business needs, such as petty cash, raw materials, or office supplies. Long-term loans, on the other hand, are designed for business expansion or modernization. Usually, bank loans mature in two to 10 years. 

Lending companies such as Esquire Financing, First Circle, and Radiowealth Finance Corporation also specialize in small business financing.

Business Loan in the Philippines Advantages

• Flexible funding options based on your needs
• Low interest rates, depending on the bank or lender
• Operations are still your own; no interference from the bank or lender
• Additional services such as business credit cards or checking accounts

Business Loan in the Philippines Disadvantages

• Strict criteria and rigorous application process
• High interest rates, depending on the bank or lender
• Repayments become part of your business’ fixed expenses
• Additional charges, such as processing fees and penalties
• If you go for a secured loan or a loan that requires collateral, you may lose your asset if you fail to pay

💸 Personal Loans

Sometimes, getting business funding is as quick and easy as applying for a personal loan. It’s a good alternative if other forms of funding for your business don’t work out.

Plenty of new entrepreneurs go for personal loans since their venture is too new to qualify for conventional financing options. You can also choose this if you want an affordable interest rate. 

You can either apply for a personal loan at a bank or at your local lender. Take note that the latter may offer lower loan amounts. 

Personal Loan Advantages

• Flexible since it can be used for any purpose
• Low interest rates especially if you have a favorable credit score 
• Quick funding since the application process takes place online
• Easier qualifications compared to business loans for start-ups

Personal Loan Disadvantages

• Small loan amount and can only be used in less financially taxing areas, such as petty cash
• Meant only for small to medium businesses 
• High interest rates

Looking for suitable options? Fund your business launch or expansion with the UnionBank Personal Loan. Borrow up to ₱2 million without collateral, get approved in just 5 minutes, and enjoy flexible payment terms of up to five years. 

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💸 Peer-to-Peer Lending 

If getting your loan application approved by banks or lenders is too challenging, peer-to-peer lending is a viable alternative. Through peer-to-peer lending, also known as P2P lending, private investors directly lend money to businesspeople.

Usually, you can access these lenders through an online platform. You create an account with the said platform, and the platform will then assess your risk and provide you with potential investors.

Think of the P2P lending channel as a matchmaker but for loans. 

Peer-to-Peer Lending Advantages

• Lower interest rates compared to banks 
• Accessible source of capital, especially if you have a low credit score or an  unconventional business idea
• Quick processing as everything takes place online 
• Generally unsecured, which means you don’t need collateral to get funding

Peer-to-Peer Lending Disadvantages

• Additional fees on top of the interest
• Application process may take time
• Chance of not getting a loan if your financial profile is not attractive 

💸 Crowdfunding 

Wondering how to raise capital for your business launch or expansion? Through crowdfunding, you collect small amounts of money from a group of people interested in your project. Usually, crowdfunding a business requires you to tap into your network on social media. 

One good thing about crowdfunding is it brings people together, from casual investors to seasoned capitalists. You also get to meet like-minded individuals. 

To fast-track your business funding, use crowdfunding platforms. Create an account, share your proposal, and wait for interested parties to donate. Some of the best crowdfunding platforms in the Philippines are Investree, The Spark Project, SeedIn, and more. 

Crowdfunding Advantages

• Attracts a community of like-minded individuals who believe in your project and vision
• Exposure as your business proposal or progress is posted online
• Feedback and suggestions from investors on how to improve your product or service 
• Keeps you from using your money, especially your savings or retirement funds, to start your business

Crowdfunding Disadvantages

• High expectations from investors or donors
• Fees and interest rates required by the crowdfunding platform 
• Chance of meeting scammers
• Requires a lot of work, from setting up your page to writing your pitch 
• False hopes brought about by your community’s validation
• Competition against similar businesses that also use crowdfunding 

💸 Venture Capitalists 

How to get capital for your business if you have a big and ambitious idea? You may want to turn to venture capitalists. 

Venture capitalists, or investors employed by a capital company, support businesses with the potential to become big in the future. In return, venture capitalists get equity in the start-up. 

If you’ve watched the business K-drama “Start-Up,” you’ll have an idea of how this funding method works. Some of the biggest businesses today are or were once backed by venture capital. These include Google, Facebook, Xiaomi, Uber, Zoom, and Airbnb, among others.^[1]

The capital is provided at different stages of the start-up, depending on the investors’ goals. Investors are usually curated and high-profile, meaning only qualified individuals will be involved with your project. 

Venture capitalists in the Philippines include Kickstart Ventures, Cerebro Labs, and Launchgarage. 

Venture Capitalists Advantages

• Large amounts of capital
• Technical or professional advice
• Valuable business insights from experienced investors
• Risk assessment and management
• Doesn’t require you to use your personal funds
• Expand your network, which breeds the ground for future collaborations
• Support for building your team and refining your operations 
• Business growth is accelerated, depending on the market response 

Venture Capitalists Disadvantages

• High expectations from investors
• Business is expected to perform and earn; otherwise, funding will be delayed or halted
• Business idea should be unique yet viable and potentially lucrative; otherwise, your pitch won’t be considered 
• Lengthy procedure, from finding an investor to building your pitch 
• Cutthroat competition among start-ups, especially if you have a competitor with a similar idea and target market
• Ownership of the company may be taken from you if the equity of the venture capitalists in the business is much bigger than yours  

💸 Angel Investors

Where to get capital for your business in the Philippines? It might not be a place, but a person. Meet the angel investor. 

An angel investor is a high-net-worth or ultra-rich individual who can back your business financially. In exchange, they’ll get a piece of ownership of your business.

Often, there is an overlap between venture capitalists and angel investors.^[2] They’re both on the lookout for businesses with potential, but venture capitalists are usually employed by capital companies while angel investors are private individuals. 

You can find angel investors in the Philippines through online platforms such as Angel Investment Network and Manila Angel Investors Network. 

Angel Investors in the Philippines Advantages

• Offer large amounts of capital
• Available across different industries
• Mentorship and technical support may be provided
• Help expand your business network

Angel Investors in the Philippines Disadvantages

• May be hard to find
• Funds may be less than what’s offered by venture capitalists
• Release of funds may be slow
• Risk of ownership takeover 

💸 Invoice Financing

Invoice financing may not exactly be the first thing that comes to mind when you’re thinking of how to get capital for your business. But it’ll provide the boost you need if your business is already up and running and you're just looking for additional capital for expansion.

Consider invoice financing if you’re dealing with late-paying clients. Say your clients haven’t paid the invoices you sent, but you need the cash right away. A lending company will step in and give you the amount of the unpaid invoices.

Once your clients pay the invoice, you’ll pay your lender back. However, your repayment must include interest and loan fees. 

Invoice financing in the Philippines is usually expensive and should be used as a last resort. To avoid this service, you should strengthen your collection system and stay firm with late-paying clients. Screen your customers carefully before doing business with them. 

Invoice Financing Advantages

• Easy application and approval process
• Quick turnover of loan proceeds
• Reliable during business emergencies 

Invoice Financing Disadvantages

• Expensive since you’ll need to pay interest and fees
• Not flexible, only meant for solving cash flow issues
• May require a creditworthiness check before your invoices are financed

Related reading:

• All the Values and Skills You Need to Become a Successful Entrepreneur
• How to Make a Business Plan Like a Pro: Step-by-Step Guide and Samples

Final Thoughts 

Building a business from the ground up is not an easy feat, especially when it comes to funding. However, the influx of lending platforms and channels that connect entrepreneurs to investors changed the game. 

Now that you know how to get capital for your business in the Philippines, it’s just a matter of finding someone who believes in your vision and offers the right terms.

Regardless, always remember to not borrow money blindly. Do it with an intention, a strategy, and an exit plan. 

Sources:

• ^[1] From Alibaba to Zynga: 45 of The Best VC Bets of All Time and What We Can Learn From Them (CB Insights, 2021)
• ^[2] Differences Between an Angel Investor and a Venture Capitalist (Business.com, 2023)