Business Loans for Startups in the Philippines
Published: July 12, 2021 | Updated: July 27, 2021 | Posted by: Venus Zoleta | Personal Loan
Finding good sources of funding is a critical step in starting a business. A small business loan from the government, a bank, or a private lender is one financing option for budding business owners.
A business loan in the Philippines comes in a variety of types that suit different business requirements. Before you start searching for the right startup business loan, it helps to have an idea of the types of business loans for starters. Doing so helps you understand your options better and easily find the loan that matches your needs.
Below are the basic business loan requirements in the Philippines and the different types of loans for every business.
Table of Contents
- What is a Business Loan?
- What is the Difference Between Business Loan, Consumer Loan, and Personal Loan?
- How Do I Qualify for a Business Loan in the Philippines?
- Basic Requirements When Applying for a Business Loan
- What are the Four Types of Business Loans in the Philippines?
- 7 Considerations When Choosing a Business Loan in the Philippines
- Final Thoughts
What is a Business Loan?
Startups need funding or capital to begin their operations and start earning a profit. Banks and financial institutions lend this money in advance to these businesses through a business loan. In turn, lenders collect payments with interests based on the agreed-upon payment schedule and lending agreement.
What is the Difference Between Business Loan, Consumer Loan, and Personal Loan?
The purpose of a business loan is to fund a business need. It may be used for business expansion or to help pay for operating expenses.
A business loan typically offers higher loanable amounts and has more documentary requirements because of the larger funding required to set up a business.
A consumer loan, on the other hand, is a general type of loan. Personal loans, housing loans, and auto loans are examples of consumer loans. You can apply for any of these consumer loans to purchase items or services for personal consumption or even to refinance debts.
When it comes to interest rates, personal loan interest rates are usually higher compared to business loan interest rates. This is because personal loans are considered riskier for lenders.
Business loans have a longer and more thorough application process, as well as stricter eligibility requirements. Because of this, lenders have more confidence in business loan borrowers to pay off the entire loan with lower interest and a longer repayment period.
How Do I Qualify for a Business Loan in the Philippines?
Banks and financial institutions have different eligibility criteria. However, most of them have the following requirements:
- Must be a Filipino citizen aged 21 but not older than 65 when the business loan matures
- Should have an SEC-registered or DTI-registered business with at least 3 years of profitable business operations
- Must meet a minimum annual gross sales
- Good credit standing
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Basic Requirements When Applying for a Business Loan
Prepare the following documents when applying for a small business loan in the Philippines.
- 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 are the Four Types of Business Loans in the Philippines?
1. Term Loans
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 in the Philippines for startup owners who want to make their loan repayments more manageable by spreading them out in regular installments.
Is a Term Loan Right for My Business?
Term loans are ideal for short-term or long-term funding for the following purposes:
- New equipment for increasing production or expanding a business
- Construction, renovation, or purchase of office space, store, warehouse, and other properties
- Adding fixed working capital to a business
- Loan for a franchise business
Lenders provide term loan amounts ranging from PHP 100,000 to PHP 20 million.
Method of Funding
Borrowers receive the full loan amount as a lump sum credited to their deposit account.
Short-term loans are payable within a year, while long-term loans can be paid up to five to 15 years, depending on the lender.
Most term loans for businesses are paid back in fixed or equal monthly payments that include both the principal and interest.
Term Loan Options for Startups in the Philippines
|Loan Name||Loan Amount||Loan Term||Interest Rate||Repayment Term|
|BPI Family Ka-Negosyo Loan||Minimum of PHP 500,000|
Maximum of 60% or 70% of appraised value of collateral
|1 to 10 years||Prevailing market interest rates||Monthly or quarterly amortizations|
|Metrobank SME Term Loan||PHP 1 million – PHP 20 million||“At competitive interest rates”||Monthly or quarterly amortizations|
|OWWA Loan (for OFWs)||Up to 7 years||7.5% fixed for the entire loan duration||Monthly amortizations|
|PSBank SME Term Loan with Prime Rebate||Up to 7 years||Prevailing PSBank rate at the time of loan availment||Monthly amortizations|
|Security Bank SME Business Mortgage Loan||PHP 1 million - PHP 20 million||1 - 10 years||7% - 10% (depending on loan term)||Monthly amortizations|
|SSS Business Development Loan Facility||The lowest of the following: ||Up to 15 years||Prevailing SSS rates||Monthly, quarterly, semi-annual, or annual amortizations|
|SSS ASENSO||Maximum of PHP 5 million||Prevailing SSS rates||Monthly amortization|
DTI also offers loans for start-up businesses in the Philippines.
2. Credit Line
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.
Is a Credit Line Right for My Business?
A credit line is ideal for short-term, recurring, or working capital financing for the following purposes:
- Purchase of additional supplies, inventory, or both to meet seasonal demand
- Increasing working capital for financing daily business operations
- Accounts receivable financing
- Contract financing
Small and medium business owners can borrow from PHP 500,000 to PHP 20 million against a line of credit.
Method of Funding
For credit lines, lenders fund the borrowers’ business checking account to the approved loan amount, giving them access to funds through issuing or encashing checks. The BPI Family Ka-Negosyo Loan provides additional ways to access loan proceeds such as ATM withdrawals, EPS (Express Payment System) transactions, and fund transfer via the BPI Online.
Credit lines are valid for one year and can be renewed annually upon the lender’s approval.
Paying off a credit line is more flexible than that of a term loan. While the interest is paid in monthly installments, borrowers can repay the principal anytime or as often as they can within the loan term. This makes managing cash flow a lot easier for business owners.
Credit Line Options for Startups in the Philippines
|Loan Name||Loan Amount||Loan Term||Interest Rate||Repayment Term|
|BPI Family Ka-Negosyo Loan||Depends on results of credit evaluation||1 year, renewable (subject to credit evaluation)||Prevailing market interest rates||Interest: Monthly amortizations Principal: Payable anytime during the credit line term|
|Metrobank SME Term Loan||PHP 1 million - PHP 20 million||1 year, renewable yearly (subject to the bank's approval)||“At competitive interest rates”||Interest: Monthly amortizations Principal: Full payment upon promissory note maturity (30 - 180 days)|
|PSBank SME Business Credit Line||1 year, renewable yearly||"At competitive SME Business Credit Line rates"||Minimum amount due (including interest): Every 10th of the month Principal: Payable anytime during the credit line term|
3. Secured Business Loans
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 fees and collateral registration fees.
With the exception of a few, term loans and credit lines in the Philippines have secured business loans.
Secured Business Loan Options in the Philippines
|Secured Business Loan||Collateral|
|BPI Family Ka-Negosyo Loan||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|
4. Unsecured 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. 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.
Here are some startup business loans without collateral in the Philippines that you may want to consider.
Unsecured Business Loan Options in the Philippines
|Unsecured Business Loan||Loan Amount||Loan Term||Interest Rate||Repayment Mode|
|BPI Family Ka-Negosyo Franchising Loan (No Collateral option)||Minimum of PHP 100,000 or 60% of total franchise investment||1 – 3 years||Prevailing market interest rates||Straight amortization|
|Security Bank SME Business Express Loan||PHP 1 million – PHP 5 million||12, 18, 24, or 36 months||Monthly add-on rates of 1.4% to 1.85% depending on the loan term||Monthly amortization|
7 Considerations When Choosing a Business Loan in the Philippines
Which startup business loan in the Philippines best fits your financing needs? Consider these seven important factors first.
1. Your Purpose for Borrowing Money
What do you need the money for? Is it for a short-term need like buying inventory and supplies to meet seasonal demand? Or you’re looking to fund a long-term investment like building your shop?
The types of business loans in the Philippines cater to a specific purpose, be it short-term, long-term, or both. Be clear about your goals from the get-go.
2. Loan Amount
Next, determine how much you need to borrow for your business. Loanable amounts vary according to the type of loan and the lender. For example, secured business loans for startups typically have higher loan amounts than unsecured loans. The higher the value of your collateral, the better your chances of qualifying for a higher loan amount. Also, most banks lend higher amounts to entrepreneurs than government agencies and private lenders in the Philippines.
3. Method of Funding
How do you prefer to access your funds? Do you want to receive the loan proceeds as a one-time lump-sum amount? Or you’d rather access the money only when you need it? Business loan types largely differ in the way the loan proceeds are released to the borrower.
4. Loan Term
How long can you realistically pay the business loan? Can you pay it off within a year? Or you need a longer time to complete your loan repayments?
5. Repayment Mode
What mode of loan payment will work better for you: fixed or flexible monthly payments? The right choice depends on the cash flow of your business.
Do you have a valuable asset you’re willing to put up as collateral for a secured business loan? If so, the amount you can borrow will depend on the appraised value of your collateral.
7. Interest Rate
Of course, you want to get the best business loan at the lowest rate possible. But it can be quite tricky because interest rates vary according to the lender’s prevailing rate, loan term, and type of loan. For instance, lenders charge higher interest rates on unsecured business loans than secured loans.
After you’ve considered all these factors, take a look at each type of small business loan. As an entrepreneur launching a startup in the Philippines, you have four choices: term loans vs. credit lines and secured vs. unsecured loans. Let this guide help you find the best business loan for you.
Money is a serious matter when it comes to running a business of any size, startups included. Do your research to determine the suitable type of business loan in the Philippines for your business needs. Spare yourself the trouble by using a free online comparison tool that can help speed up your search for the business loan online.
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Venus is the Head of Content at Moneymax, with 15+ years of experience in digital marketing, corporate communications, PR, and journalism. She invests in stocks, mutual funds, VUL, and Pag-IBIG MP2. Outside of work, she’s crazy about cats and Korean dramas. Follow Venus on LinkedIn.