What is a Business Loan?
A business loan is a credit that banks and lending companies extend to eligible business owners, SMEs, and corporations to fund business expenses such as purchasing goods and equipment and rental fees.
Borrowers can access instant cash through this loan that’s repayable with interest. Most banks and lenders offer competitive interest rates and flexible loan terms to make the monthly amortization affordable.
Types of Business Loans
Business loans in the Philippines have four different types, each with unique features and benefits.
Term Loan
A term loan is a credit between a business owner and a lender where the former receives cash in full or lump sum for short-term or long-term. The borrower pays back the loan with interest in installments with a fixed schedule.
This type of loan favors entrepreneurs who need instant cash to help them finance their business endeavors, such as the following:
- Growing working capital for daily business operations
- Constructing and/or renovating the workplace
- Purchasing equipment and/or machine for business production
- Purchasing franchises for business expansion
Credit Line
A credit line allows you to withdraw cash from your fund or credit line limit, make payments against it, and then withdraw funds again. You can use the funds for the following:
- Financing of contract
- Financing of accounts receivable
- Purchasing of additional materials, inventory, and other supplies
- Growing working capital for daily business operations
Secured Business Loan
A secured business loan requires borrowers to present collateral or any asset as a guarantee to pay back the loan in full. If there’s an event of default, the loan provider can legally forfeit it. This type of loan features a high loan amount, low interest rate, and long loan term in contrast to an unsecured business loan.
Unsecured Business Loan
Eligible entrepreneurs can apply for unsecured loans to their preferred bank or lending company. They don’t have to provide collateral for loan approval, and the process is more lenient since only a few documents are involved. But the only caveat for this type of loan is that lenders charge high interest rates and only offer limited loan amounts.
Example of Business Loans
BPI SME Term Loan
Loan Features
Loan Amount: minimum of ₱300,000
Loan Tenure: within 5 years
Interest Rate: not Indicated
Acceptable Collateral: any of the following:
- Real estate mortgage
- Deposit
- Investment
BPI SME Credit Line
Loan Features
Loan Amount: minimum of ₱300,000
Loan Tenure: 1 year (renewable)
Interest Rate: not Indicated
Acceptable Collateral: any of the following:
- Real estate mortgage
- Deposit
- Investment
Bank of Makati Power Negosyo Enterprise Loan (PNEL)
Loan Features
Loan Amount:
For PNL 150: ₱50,000 up to ₱150,000
For PNL 300: ₱150,001 up to ₱300,000
For PNL 500: ₱300,001 up to ₱500,000
Loan Tenure:
For PNL 150: Within 3, 6, 9, and 12 months
For PNL 300: Up to 24 months
For PNL 500: Up to 36 months
Processing Fee: ₱1,000 on top of other additional charges for documentary stamp tax, credit life insurance, notary, and annotation.
Security Bank SME Business Loan
Loan Features
Loan Amount: ₱1 million up to ₱5 million
Loan Tenure: Within 12, 18, 24, or 36 months
Interest Rate: depending on the loan tenure
Loan Tenure | Interest Rate (per month) |
12 months | 1.50% |
18 months | 1.60% |
24 months | 1.90% |
36 months | 1.95% |
Processing Fee: ₱3,000
Notarial Fee for Sole Proprietorships: ₱400
Notarial Fee for Partnerships and Corporations: ₱800
DST: Approved Loan Amount / 200 * 1.50
Late Payment Penalty Fee: 3% of the past amount due for the month
Security Bank Business Mortgage Loan
Loan Features
Loan Amount: ₱1 million up to ₱30 million
Loan Tenure: up to 20 years (depending on the bank’s valuation)
Interest Rate: see the table below for review and reference. Take note, however, that interest rates change monthly. Due to repricing, rates do not apply to Business Mortgage Loan amortized loans.
Fixing Period | Interest rate per annum % for a loan amount of ₱5 million below | Interest rate per annum % for a loan amount of ₱5 million and above |
1 Year | 8.25% | 7.75% |
2 Years | 9.00% | 8.50% |
3 Years | 9.75% | 9.25% |
4 Years | No price-fixing rate | No price-fixing rate |
5 Years | No price-fixing rate | No price-fixing rate |
6-10 Years | No price-fixing rate | No price-fixing rate |
Acceptable Collaterals:
Type | LTV |
Residential Properties | Up to 80% of Appraised Value for a lot with improvement and vacant lot* |
Commercial Properties | Up to 80% of Appraised Value* |
Mixed-use Properties | Up to 80% of Appraised Value* |
Hold-out Deposit | 100% of Peso deposit accounts maintained with SBC. |
Note: LTV can be as high as 80%, depending on the bank’s valuation and capacity to pay evaluation.
Appraisal Fee (paid upfront)
- Metro Manila – ₱3,500
- Outside Metro Manila – ₱4,500
- Additional Titles within the same area – ₱500
Real Estate Mortgage Fees (paid upon loan approval)
2.5% to 3.0% of the loan amount (inclusive of DST, registration fee, notarial fee, processing fee)
Late Payment Fee: 24% per day of unpaid amortization + past due interest for technical past dues. Effective October 25, 2021: 2% of unpaid amortization
Conclusion
Business loans are undeniably helpful for companies that want to start a business or scale their operations to achieve financial growth. Aspiring entrepreneurs with limited cash can make their dreams come true.
A word of caution is that loans also have risks that can make or break your business. It’s essential for borrowers should be equipped with the appropriate information and knowledge about the loan features and terms and conditions before signing the agreement.