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.
Funding a business is no easy feat. There are a lot of routes to take, and it may feel overwhelming. Each funding method can affect how your operations will fare in the long run. With that, you need to be careful when weighing your options.
We’ll help you with that. Here’s a rundown of where to get capital for your business. We’ve also included the pros and cons of each funding method to help you decide whether the said option actually suits you.
Where to Get Capital for Business Start-ups: 8 Funding Options in the Philippines
Also known as self-funding, bootstrapping lets you tap into your personal financial resources to kickstart your business. This means using your savings accounts or retirement funds. If you have stocks or mutual funds, you can withdraw them. You 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 repayment but also your desire to not let them down.
- 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
- Risk of 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
💸 Business Loans
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 where to get capital for your business with this route, you have two choices: banks and lending companies.
Banks such as LANDBANK, the Philippine National Bank (PNB), and Security Bank 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
- The bank may offer additional services for your business, 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 businesspeople 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
Speaking of Personal Loans, Here’s Something from Citi!
Citi is one of your best options if you’re unsure where to get capital for your business. You can borrow up to ₱2 million pesos at low interest rates. It also comes with a flexible repayment term of up to five years.
On top of that, you’ll receive a welcome gift if you apply for a Citi Personal Loan through Moneymax and get approved subsequently.
Note: This product is sold by Union Bank of the Philippines, using certain trademarks temporarily under license from Citigroup Inc. and related group entities.
💸 Peer-to-Peer Lending
If getting your business loan application approved by banks or lenders is too challenging, peer-to-peer lending in the Philippines 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 that 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
Wondering where else to get capital for your business? Crowdfunding works by collecting 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 channels for business in the Philippines include Investree, Kickstarter, Indiegogo, and GoFundMe.
- 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
- 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
Where do you get capital for your business if you have a big and ambitious idea? You may want to turn to venture capitalists in the Philippines.
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 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.
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
- Don’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 that 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. 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 you 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 where to get capital for your business. But it’ll provide the boost you need if your business is already up and running. 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 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
- Sometimes 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: Money-Saving Tips for Entrepreneurs
Building a business from the ground up is not an easy feat, especially when it comes to funding. But the influx of lending platforms and channels that connect entrepreneurs to investors changed the game.
This article showed you where to get capital for your business in the Philippines. Now, 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.
Source:  From Alibaba to Zynga: 45 of The Best VC Bets of All Time and What We Can Learn From Them (CB Insights, 2021)