What is the Best Type of Loan for My Business?

by Venus Zoleta, on category "Personal Loan"

August 22, 2018


Business Loan for Startup Philippines | MoneyMax.ph

Finding good sources of funding is a critical step in starting a business. A business loan from the government, a bank, or a private lender is one financing option for budding small and medium business owners. Business loans come in a variety of types that suit different business requirements. Before you start searching for the right loan for your startup business, it helps to have an idea of the types of business loans available to you. Doing so helps you understand your options better and easily find the loan that matches your needs.

7 Considerations When Choosing a Business Loan

Business Loan for Startup Philippines | MoneyMax.ph Which type of loan best fits your business 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 loan 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 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? Citibank CTA

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.

6. Collateral

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 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.

Business Loan Type #1: Term Loans

Business Loan in Philippines - Term Loan | MoneyMax.ph

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 option for startup owners who want to make their loan repayments more manageable by spreading them out in regular installments.

Is a Term Loan Suitable for Your Business?

Terms 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
  • Financing a franchise business

Loan Amount

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.

Loan Term

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.

Repayment Mode

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 Amount Loan Term Interest Rate Repayment Mode
  BDO SME Term Loan  PHP 1 million - PHP 20 million 1 - 10 years
  • 7.5% (Fixing period of 1 - 3 years)
  • 8% (Fixing period of 4 or 5 years)
Monthly amortizations
BPI Family Ka-Negosyo Loan
  • Minimum of PHP 500,000
  • Maximum of 60% or 70% of appraised value of collateral
1 - 10 years Prevailing market interest rates Monthly or quarterly amortizations
Metrobank SME Term Loan  PHP 1 million - PHP 20 million
  • Short-term: Up to 360 days
  • Long-term: 2 - 7 years
 "At competitive interest rates" Monthly or quarterly amortizations
OWWA Loan (for OFWs)
  •  PHP 100,000 - PHP 2 million (single proprietorship)
  • PHP 100,000 - PHP 5 million (partnership, cooperative, or corporation)
Up to 7 years 7.5% fixed for the entire loan duration Monthly amortizations
PSBank SME Term Loan with Prime Rebate
  • Minimum of PHP 2 million (with real estate property as collateral)
  • PHP 500,000 (with bank deposit as collateral)
1 - 10 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:
  • Requested loan amount
  • Total project cost
  • Loan value of the collateral
  • PHP 500,000
Up to 15 years Prevailing SSS rates

Monthly, quarterly, semi-annual, or annual amortizations

SSS ASENSO Maximum of PHP 5 million
  • Short-term: 1 year
  • Long-term: Up to 5 years
Prevailing SSS rates Monthly amortizations

Business Loan Type #2: Credit Line

Business Loan in Philippines - Credit Line | MoneyMax.ph

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 Suitable for Your 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

Loan Amount

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 Express Online.

Loan Term

Credit lines are valid for one year and can be renewed annually upon the lender's approval.

Repayment Mode

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 Amount Loan Term Interest Rate Repayment Mode
  BDO SME Ready Check PHP 3 million - PHP 20 million 1 year (with option to renew) 7.5% Flexible monthly amortizations
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 Credit Line 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
  • Minimum of PHP 2 million (with real estate property as collateral)
  • PHP 500,000 (with bank deposit as collateral)
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

Business Loan Type #3: Secured Business Loans

Business Loan in Philippines - Secured Business Loan | MoneyMax.ph

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.

Secured Business Loan Options in the Philippines

 Secured Business Loans Collateral
BDO SME Loan         Residential, commercial, industrial, or mixed-use property
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

Business Loan Type #4: Unsecured Business Loans

Business Loan in Philippines - Unsecured Business Loan | MoneyMax.ph

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.

Unsecured Business Loan Options in the Philippines

Unsecured Business Loans BPI Family Ka-Negosyo Franchising Loan (No Collateral option) Security Bank SME Business Express Loan
Loan Amount Minimum of PHP 100,000 or 60% of total franchise investment PHP 1 million - PHP 5 million
Loan Term 1 - 3 years 12, 18, 24, or 36 months
Interest Rate Prevailing market interest rates Monthly add-on rates of 1.4% to 1.85% depending on loan term
Repayment Mode Straight amortization Monthly amortizations

Final Thoughts

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 loan for your business needs. Spare yourself the trouble by using a free online comparison tool that can help speed up your search for the best business loan. (Photos from Freepik.com) Personal Loan CTA