Where to Loan for Small Businesses in the Philippines

What is Considered a Small Business?

A business enterprise is categorized as a small business if it has employees ranging from 10-99 and has an asset size of ₱3,000,001 up to ₱15,000,000 in any industry. 99.51% of the businesses in the Philippines today are composed of Micro, Small, and Medium Enterprises (MSMEs). 

Purposes for Small Business to Apply for a Loan

Many small enterprises need additional funds to fund their current business operations. That is why many entrepreneurs seek financial providers who could help them with their financial needs. The most common reasons why small business applies for a loan are the following: 

• Product improvement
• Plant expansion
• Acquire additional equipment
• Repair machinery
• Additional working capital 

Where Can Small Businesses Apply for a Loan in the Philippines?

Many financial institutions and credit unions establish loan products that are fit for the needs of small enterprises. Small businesses may run into a traditional financial providers such as Banks, non-banks, and even government agencies if they need cash. 

Banks

BPI SME Term Loan

Eligibility Requirements

• Must be a Filipino citizen
• Proven residency for a period of 2 years
• Applicants must be between 21 to 70 years old
• The business must be in operation for at least 3 years

Loan Features

Loan Amount: minimum of ₱300,000

Loan Term: up to 5 years

Processing Fee: ₱3,500

First Circle Revolving Credit Line

Businesses can apply for a set credit limit – just like a credit card – and they can use the amount within the set limit to take care of business needs. When the business makes a payment against the used portion of the limit, the amount that can be used is freed up again. 

Loan Features

Loan amount: based on the approved credit limit

Interest rate: 1.74% to 3.49% per month

Loan term: up to 6 months

Convenience Fee: fixed at 1.99% of the principal amount, or a subscription fee with unlimited drawdown

SSS Business Development Loan Facility

This loan facility is meant to provide financial aid for business enterprises that seek additional funds.

Eligibility Requirements

• Sole Proprietor, Partnership, or Corporation, with at least 60% Filipino ownership, it can either be:
  • New Business
  • Existing business
  • Barangay Micro Business Enterprises
• Belongs to the qualified business industries
• Has an established profitability record
  • If already an existing business
    • Recorded profit for 3 years 
    • If the business has incurred a loss in any year within the 3-year requirement period, when the average is taken, the result must still be profitable.
  • If in operation for only 5 years
    • The 3-year requirement is waived. Just prove that the business operations will be viable in the coming years and has a projection of debt to equity ratio of not more than 3:1.
• An active paying member-employer.

Loan Features

A condition must be met before the small business can apply for a loan which is the following:

• The debt to equity ratio must not be more than 3:1
• The aggregate loaned amount must not exceed 5% of the Investment reserve fund of SSS

Loan Amount: The maximum amount of loan is the lowest among the following:

• Loan amount applied
• Actual amount needed
• The market value of the collateral
• The maximum allowable amount per borrower is ₱500,000.

Interest Rate: SSS prevailing rate

Loan Term: 

• Maximum loan term – 15 years, with a 3-year grace period.
• Some qualified industries are allowed to be given a longer term. 

What Small Businesses Must Consider Before Applying for a Loan?

The counterpart of borrowing money is how much will be the interest that the borrower will need to pay aside from the principal amount. The small business must consider its capacity to repay when the loan is due. It must also consider what other benefits they could get in applying for a loan. If future benefits outweigh the risks of taking a loan application, then the borrower has made the right call. 

Conclusion

There are a lot of financial institutions that offer loan products to business enterprises. Deciding where to apply for a small business loan is a challenging process when putting the best interests of the business first, and must be thought through with utmost consideration before proceeding.