How a Loan Can Save Your Business

How a Loan Can Save Your Business

Business loan is a popular approach to get the funding for your company. Overall, entrepreneurs opt for speedy cash loans in different cases – business expansion, infrastructure improvements, hardware/software upgrades, licensing or certification, and so many more. Fundera reports that 82% of companies fail to sustain because of cash flow issues while about two-thirds of all businesses survive only for two years!

Obviously, if you are a business owner, you want to keep your brand running as long as possible and get high profits. To overcome financial problems, chief managers and executives decide on getting a bank loan. What’s the trick with it? How to avoid various pitfalls? And which loan type to choose? We are going to answer these questions in the following sections. Read on!

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Things to Consider Before Getting a Loan

First, we suggest understanding why your firm needs a loan and for what purposes. For example, Finder reports that 59% of American companies that took part in the survey in 2017 requested loans for their brand’s expansion. Forty-three (43%) of the respondents aimed at covering operating expenses, while 26% needed money for refinancing and saving their business.

Here’s a simple checklist with essential points to consider – loan purpose, loan sum, repayment time, interest rate, loan repayment mode, and loan backing.

As long as the Philippines experiences significant economic growth, the number of bank lending companies increases, too. For example, the research conducted in 2017 states that the lending sector would grow by 13.6% by 2021. Today, it’s pretty simple to obtain a loan online or offline, so you shouldn’t face problems with getting financial support. However, it’s not an easy task to choose the most suitable option.

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Major Loan Types

The following four paragraphs shortly describe the main loan types available for businesses in the Philippines. We won’t focus on providing exhaustive lists of all banks because you can get money at almost any, including BDO, BPI, Land Bank, and PSBank. Feel free to explore the market on your own to find other (probably more suitable) offerings.

1| Term Loans. This type is perfect for businesses that want to get extra funding for a set period of time with a special repayment schedule. For example, you can get money for purchasing new equipment, investing in offices and inventory, boosting the company’s capital, and so on. The exact conditions for these loans are as follows:

  • Amount: from PHP100,000 to PHP20 million
  • Time: from one year for short offers to 15 years for long ones
  • Interest Rate: from 7%
  • Funding Options: a lump sum
  • Repayment Mode: varies from annual to monthly fees

2| Credit Lines. Put simply, this type covers traditional credits that are great for a short term. You have to pay only when you actually use the borrowed money. Thus, you can set a particular credit limit to avoid overspending, but you aren’t obliged to use this money, actually. Terms and conditions for credit lines can be:

  • Amount: from PHP500,000 to PHP20 million
  • Time: one year with the renewal option
  • Interest Rate: from 7.5%
  • Funding Options: cashable checks and, rarely, ATM/EPS/online transactions
  • Repayment Mode: payments at any convenient time

3| Backed Loans. The main feature of this type is that loans always require some sort of financial security, or collateral. Thus, lenders are more protected and, respectively, deliver better offerings with higher credit amounts and, at the same time, lower rates. As a rule, the majority of business lending offerings in the Philippines are backed by a collateral. Because of different needs, the exact conditions vary greatly depending on the lending organization and businesses that request money.

4| Unbacked Loans. Unlike secured offers, these ones don’t require providing any financial security. They are more difficult to obtain, particularly for companies and persons with a bad credit history. Obviously, they feature worse conditions with higher rates and lower credit amounts. Usually, only private companies deliver unsecured loans. Nonetheless, you can get such offers from big banks like BPI and Security Bank (for PHP100,000-PHP5 million and for 1-3 years).

What Are Some Lending Organizations?

Hopefully, it’s clear why and when you should apply for a loan. Borrowed money can help the brand to expand or recover. You want to calculate everything properly to make sure that further repayments are affordable for the business. In a nutshell, loans act as viable tools similar to any other asset but they require more elaborate planning and understanding of the industry.

If you want to start with small amounts to see how things work, here are a few companies that provide such services:

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  • GSIS Loans: up to PHP50,000 with a 3% monthly interest rate (unsecured)
  • LDPO: up to PHP200,000 with the interest rates up to 9% (secured)
  • SBC Loans: PHP200,000-PHP15 million from 70 lenders with a 10.1%-18% interest
  • SSS Loans: Secured offers for the 1-15 year terms and different credit amounts
  • Workers’ Microfinance Program: PHP6,000-PHP150,000 for small businesses

Apart from traditional options, you can get peer-to-peer loans from Kiva, Simplex or a more unique platform Bitbond that provides Bitcoin loans.

Further Steps After Receiving Your Loan

In conclusion, we want to list several hints related to the post-loan period. After receiving the money, you shouldn’t forget about the core purpose. Stick to these points to avoid various problems with repayments:

  1. Schedule a proper repayment plan and stick to it.
  2. Know about all possible repayment options.
  3. Be aware of your actual credit score.
  4. Consider refinancing debts into better loans.
  5. Prepare for calls from lenders.
  6. Use loans to boost your business.

If you do everything right, you will be able to grow the company and return the entire loan amount without issues. Just learn about finance management, or hire an accountant to help you with it.

Alan Moore is a specialist in financial industry where he has spent the past years working as a personal consultant, especially in the field of starting a business. He has bookkeeping experiences and finds himself  as a freelance writer. His articles help people get more information about personal finance, credits and loans, starting a business and everything that relates to financial issues.