SMEs comprise a large portion of the business industry in the Philippines and have been affected drastically by the COVID-19 pandemic. Some did major and minor changes to adapt to be able to continue to operate such as laying-off, offering take-out deliveries only, and skeletal forces are only allowed to report to the office. SMEs suffer due to a grave decrease in sales the most, because it is their source of salaries for employees, payment for utilities, and most of all, for sustenance for their families.
Many institutions are offering a Covid-19 emergency assistance loan, aside from their usual business loans. Each loan varies according to requirements, eligibility, loanable amount, length of processing, etc. however, there are things that institutions commonly look for among interested borrowers. Consider the following before taking a business loan.
1. Evaluate your business (and yourself).
Credit history. Lenders look into your capacity to repay debts, hence, the need to look into your credit history. Away to evaluate this capacity to repay is through a credit score. The higher your credit score, the better your chances of loan approval. Credit history also includes types of credit used, the time it took to repay credits, and others.
Repayment capacity. Several factors contribute to evaluating your ability to repay: income, assets, liabilities, and credit history, and positive cash flow for a number of years prior to loan application, meaning, the business’ liquid assets are increasing. These are very crucial factors in determining whether your loan will get approval or not. But remember, be honest! Banks also conduct a face-to-face meeting with the borrower for evaluations.
Business size. Several loans set a business size as eligibility. In the Philippines, businesses are classified by asset size according to the following:
- Micro - up to P 3 Million
- Small - P 3,000,001 - P15,000,000
- Medium - P 15,000,001 - P 100,000,000
This is also a basis for lenders to evaluate a borrower’s capacity to repay.
2. Evaluate the loan.
It may be difficult to get the business back up again after the crisis, so take the time to carefully evaluate the given loan terms and conditions, and see if you can meet them. Repayment terms include the amount of time the debt has to be paid, the amount that has to be paid every month, and the interest rate. Some business loans are very competitive so it is very difficult to comply with, but the loanable amounts are very much higher. Remember to consider all the points in number 1 and make sure that you are capable of meeting the terms. Take note also of how long it takes for the lender to process your application. Some take 14 banking days, some for a month, while others are available after 24 hours. Finally, also take note of the mode of how they release the money -- some give the lump sum, while some release the money when you want them to do so.
3. Prepare the basic requirements.
Requirements vary among loans, depending on business size. But the following are most commonly looked for by lenders:
- Valid government ID
- Business/Mayor’s Permit
- DTI/SEC Certificate
- BIR Certificate of Registration
- Business background/company profile
- Duly signed and accomplished application form
Sole proprietorships, partnerships, or corporations have specific needed requirements. Some lenders would call you to schedule an evaluation interview to assess your loan purpose and repayment capacity more personally.
Collaterals. There are two types of loans according to collaterals: unsecured and secured. Unsecured loans are those without collateral, so there is a huge reliance on the borrower’s credibility and trustworthiness. If the borrower fails to repay, the lender may file a lawsuit against the former. Secured loans are those backed up by collateral. It may be only one or several assets. Loanable amounts often depend on the value of the collateral -- you can loan, for example, up to 80% of its value to protect the surety of loan repayment.
A Few More Points
While everyone is at their homes until quarantine ends, remember to maximize all the information that the Internet has to offer. Most lending institutions have websites and contact numbers, some even have online loan applications! Some banks also have open branches, however, with limited services. The best time to do right now is to follow these steps so everything is ready when you avail of a business loan.