Business Loan Purposes
A business loan is one of the loan products offered by a financial institution or private lenders to business enterprises that need funds for business capital requirements. For the business to be approved for a business capital loan, the terms and conditions, eligibility, and documentary requirements must be satisfied.
There are many reasons why business enterprises enter into a loan or contract. They can use such acquired funds for the purchase of raw materials, product improvements, additional working capital, repair or maintenance of equipment, payment of a short-term debt, plant or property expansion, and any other purposes that may be related to their business operation.
Most Common Types of Loans for Business Capital
There are numerous business loan products borrowers may apply for. But here are the most common types of business loans that are well suited to every business’s needs.
Term Loan
A term loan offers a more convenient repayment term. The term can be payable from one year to ten years, with some up to 30 years, depending on the agreement. It also has an unfixed interest rate that will be added to the principal amount to be repaid.
Credit Line
A line of credit is a type of financing extended to an individual, a business, or a government agency that will allow the borrower to access the “line” when the fund is required.
Secured Business Loan
A secured type of business loan requires collateral. The most common types of collateral are real estate and savings accounts. The advantage of this type of loan is the possibility of getting a higher approval rate for the loan application as well as getting approved for higher loan proceeds.
Unsecured Business Loan
As this may not need collateral, the borrower’s credit standing will be the basis of approval. The red flag to this type of loan is that the imposition of interest rate is higher than a secured business loan.
Financial Institutions that Offer Business Loan
BDO Term Loan
Loan purpose:
- Purchase of a new asset
- Real estate acquisition
- Repair/maintenance/renovation of equipment, machinery, facility
Loan Features:
Loan Amount: ₱1,000,000 to ₱20,000,000
Interest Rates (fixing period per annum):
For New Application
- 1 year – 6.25%
- 2 years – 6.25%
- 3 years – 6.75%
- 4 years – 7.25%
- 5 years – 7.25%
- Existing borrowers: rate applies depending on the agreement.
Loan term: up to 10 years
Other Charges:
- Appraisal Fee
- Within a 30km radius of a branch of BDO – ₱5,000
- Outside 30 km radius – ₱5,500
- Administration Fee: ₱5,000
- Notarial fee: ₱600
- Collateral Registration fee: based on the loan proceeds and registration of deed fees.
- Documentary stamp tax: ₱1.50 for every ₱200 of the loan proceeds
BDO SME Ready Check (Revolving Credit Line)
Loan Purpose:
- Purchasing inventory
- Additional working capital
- Payment of short-term loans
Loan Features:
Loan Amount: ₱3,000,000 to ₱20,000,000 (if there is collateral, the loan amount can be up to 70% of the property’s value)
Loan Term: up to 1 year, subject to renewal.
Other Charges:
- Appraisal Fee
- Within a 30km radius of a branch of BDO: ₱5,000
- Outside 30 km radius: ₱5,500
- Administration Fee: ₱5,000
- Notarial Fee: ₱600
- Documentary Stamp Tax – ₱1.50 for every ₱200 of the loan proceeds
Security Bank SME Business Mortgage Loan
Loan Features:
Loan Amount: ₱1,000,000 to ₱30,000,000
Loan Term: up to 20 years (depending on the bank’s valuation)
Approval Period: 15 to 20 working days
Other Charges and Penalties:
- Appraisal fees
- upfront payment – ₱3,500 – Metro Manila
- upfront payment – ₱4,500 – outside metro manila
- For additional titles – ₱500
- Late payment fee
- 2% per day of unpaid amortization
- Past due interests
Collateral Accepted
- Residential Properties
- Commercial Properties
- Mixed-used Properties
- Hold-out Deposit
Rating
4.4/5
Security Bank
Security Bank offers attractive loan terms. Get this offer now.
Considerations When Choosing a Loan for Business Capital in the Philipines
When applying for a business loan, there are different considerations that a borrower must weigh in. They are the following:
The Reputation of the Lender
A business must check the reputation of the lender before considering signing any type of loan agreement with them. This ensures that the business shall not suffer from the consequences brought about by lenders with illegal and unethical practices.
The Amount Needed
Just like personal loans, the business must also only borrow what is only required. There is an interest attached to the principal loan amount borrowed and the firm must not pay more than what it should, especially if it is not required.
Loan Terms
Some business loans for capital are offered for only a short term while others with longer repayment terms. Although loan products with longer terms help businesses plan their budgets and repayments well, short-term loans allow businesses to pay off the loan as soon as possible. There are pros and cons for the term that is most suitable for the business and this must be carefully taken into consideration.
Fees and Other Charges
Most of the time, the fees and other charges are hidden from the borrower to make it seem like the loan is affordable. It is important for the business to check all the fees attached to the loan to ensure that the repayments are not more than what they ought to be.
Conclusion
Any business cannot just apply for a business capital loan without checking the terms and conditions. It will do well for borrowers to compare different loan products and their features before they choose which one to go ahead with to ensure that the business gets the most out of the financing applied for and what is considered to be the best for the business.
Aunt Piggyy
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