Business Loans in the Philippines: A Guide for PH Entrepreneurs

Starting a business is an outstanding achievement that comes with a set of challenges. One of the biggest hurdles you will face is acquiring capital. It can be daunting to figure out how to fund your business, especially when you’re just starting.

However, there are several financing options available, including business loans. Securing funding is an excellent way to get the necessary capital for your business. In the Philippines, the government supports micro, small, and medium enterprises (MSMEs) with programs and laws that make it easier for companies to get loans.

But what type of loan should you get? This guide explores everything you need to know about business loans in the Philippines to ensure that your funding plan suits your enterprise’s needs and capabilities.

What is a Business Loan?

A business loan is getting funding from a lending body, like a bank or private lender, for company-related purposes. For example, starting or expanding a business, purchasing equipment, or financing inventory. Unlike other loan types, business loans typically involve higher amounts, longer repayment terms, and stricter eligibility requirements.

Types of Loans for Businesses

You can separate the types of business loans typically by either the borrowing and repayment terms, or whether they require you to give collateral.

1. Term loans

If you get a term loan, you get a total amount, also known as a “lump sum,” to repay over a period, usually between one to ten years. This loan typically has a fixed interest rate and set maturity date, but variable interest rates are also an option. Term loans are best for businesses with a plan – a significant expansion purchase, for example.

2. Credit lines

A credit line is like a personal credit card, where you get a revolving line of credit that allows you to borrow up to a certain amount with interest scaling only on what you borrow. Credit lines are less restricting than term loans, but the interest rates are generally higher. This loan type can help businesses needing flexible financing to manage cash flows.

3. Invoice financing

Some businesses rely on invoices that can take their clients months to pay off, which can cause cash flow problems. These types of companies can turn to invoice financing.

Invoice financing is when a lender pays a business a percentage of the invoice value upfront and potentially the remaining value once the client settles the invoice. That way, they still have access to funds while they wait for payment.

4. Secured and unsecured business loans

Secured business loans require collateral. You promise assets, like property or equipment, to the bank should you be unable to pay for the loan. This pledge lowers the risk factor for lending institutions, which may help you secure higher amounts with lower interest rates and extended repayment periods.

Unsecured business loans are the opposite and don’t require collateral to secure them. Instead, lenders typically rely on other factors, like the borrower’s creditworthiness, business history, and financial statements. While unsecured loans have higher risk factors for lenders, they may be more attractive to enterprises that don’t have the required assets to pledge for a secured loan.

General Business Loan Requirements in the Philippines

The requirements for a business loan may vary depending on the lending partner, but there are general requirements that most will ask for, including:

1. Valid government ID
2. BIR Certificate of Registration
3. Latest Financial Statements
4. Business permits and licenses
5. Bank statements
6. Collateral or proof of ownership of the collateral, if applicable

Best Business Loans in the Philippines

Thanks to government support, you have many options for business loans in the Philippines. Here’s a list of some of the best.

1. Land Bank Small and Medium Enterprises Loans

Land Bank offers a wide selection of loans, so you can access a plan focused on what you need. For example, if you plan on franchising an existing business, their Franchise Lending Program has adjustable term loans depending on your project. You can finance up to 80% of the project cost with a minimum of PHP 100,000. 

They also have more general loans, like their Term Loan Facility, which provides secured loans at varying rates, depending on what you borrow. Land Bank’s flexible term loans can help small businesses looking to finance their operations and expansion.

Land Bank also has credit lines with their Working Capital and Liquidity Support Facilities, which can help with your business’s daily operation costs.

2. First Circle Credit Line

First Circle offers an unsecured credit line whose interest rates and credit limits scale based on your business’s annual revenue. The table below shows the three categories they offer.

Source: First Circle

First Circle offers three payment options: monthly, bi-monthly, and one-time. Because they don’t require collateral, they are an accessible option for smaller businesses. However, one limitation is that you must be making more than PHP 5 million a year to be eligible, meaning startups would need to look elsewhere.

3. FundSpace (portfolio company under 917Ventures)

FundSpace offers short-term loans and invoice financing. With their invoice financing program, you can receive up to 80% of your expected payment at a 3% interest rate. The minimum amount is PHP 500,000, but it can go as high as PHP 1 million. Because the invoice serves as proof of incoming cash flow, they don’t require collateral.

A short-term loan with FundSpace can give you anywhere from PHP 100,000 to PHP 50 million at a 3% interest rate. You can select a period between 3, 6 and 12 months. FundSpace is a good option for businesses that rely on long-term payments and those that need a lump sum quickly and are confident in repaying.

Funding Your Dreams

Every entrepreneur has business goals, whether it’s to start a new venture or expand an existing one. Securing enough capital can be challenging, but getting a business loan is one of the best ways to turn those dreams into reality. By understanding your options, you become equipped to achieve your business milestones.

Once you’ve addressed the financial needs of your business, the next step would be to focus on its other aspects, such as other selling channels. If you’re planning to build an online store in the long run, do know that RUSH provides an all-in-one online store builder to help you grow and thrive in the competitive digital space.

From Discovery to Delivery, the RUSH eStore will support your business through the whole path to purchase. Give your customers access to all your stores and products online, and offer an enjoyable shopping experience with easy check-out, promo codes and discounts, and convenient payment methods. With either an in-house fleet or RUSH’s third-party logistics provider, you can deliver delight straight to your customers’ doorsteps. Book a demo today!