It can be said that having one’s own business is the new Filipino dream. Whereas in the past, most people’s paradigm of thinking had been to find a stable job where one can be employed for the rest of one’s life, these days, more and more Filipinos are thinking of seizing entrepreneurial opportunities to make their lives better and to make their dreams come true.
According to the 2015-2016 Philippine Entrepreneurial Report—spearheaded by the 2015 Philippine GEM National Team and published by the De La Salle University Publishing House— the Philippines registered the highest among ASEAN countries when it came to perceived capabilities and entrepreneurial intentions. Nearly 70% of Filipinos believed that they had the necessary skills to be become entrepreneurs, while 54% also believed that entrepreneurial opportunities abound in the country.
Nevertheless, around 36% of Filipinos also feared failure, while a high discontinuance rate (12.10% in 2015) persisted due mainly to difficulty in maintaining profitable business operations, as well as difficulty in accessing financing in order to continue doing business.
The report sheds light on the fact that many aspiring and existing Filipino business owners need better access to financial resources—both equity and debt—in order to become better empowered to establish their own businesses or to continue doing what they have started. In this article, we’ll share with you some of the best ways you can get financing for the business idea you have in mind.
Borrow Money from Family and Friends
Taking out a loan from family and friends is not new to Filipinos. In fact, a significant majority of Filipinos who try to establish their own businesses borrow from relatives and other individuals close to them. According to the 2015-2016 Philippine Entrepreneurial Report, 77.6% of Filipino entrepreneurs sourced investment and capital from their families, while 38.4% sourced from their friends. These numbers overlap with other sources of financing that these people may have tried.
There is a very good reason why people take out loans from family and friends instead of borrowing money from traditional lenders and financial institutions. Lenders like banks are often wont to extend business loans because of the risks involved, and as such, they tend to ask aspiring and current entrepreneurs to complete lengthy documentary procedures and to meet stringent collateral requirements.
There is generally less headache involved in taking out a loan from generous relatives and friends, and this is why borrowing money from such people is a popular business financing strategy for a lot of Filipino entrepreneurs. Your credit history will not matter, and more often than not, collateral won’t be required of you. You could even benefit from much looser payment terms and lower interest rates.
Of course, you need to make sure to keep your arrangement with the people you borrowed money from strictly business. Treat your lender as you would a financial institution by signing a proper agreement that details how much money you need, how you intend to use it, and how you plan to pay it back. Also include a payment schedule and a proper business plan. If you intend to offer the lender equity in your business, the terms must be properly laid out in your agreement as well.
Take Out a Business Loan from a Bank
Borrowing money from banks is another popular option of business financing for a lot of would-be and current entrepreneurs in the Philippines. Due to their sheer financial power, banks can extend even huge sums of money to those who need them—something that not all friends and relations would be able to do for you, even if they were quite generous. Almost all banks in the Philippines offer a range of business loans. Here are the two main types of bank business loans that you can take out.
Term Business Loans
These are the most common type of business loans offered by financial institutions in the Philippines. As the name suggests, a term loan is a monetary loan extended by a bank for which the borrower makes regular repayments within a specified period of time.
Term loans can have fixed or variable interest rates, and they can be secured (needs collateral) or unsecured. At Robinsons Bank, we offer fixed term loans than can be customized according to your specific requirements and are available in medium- to long-term arrangements.
A credit line or line of credit is another type of business loan typically offered by banks. It’s a short-term loan wherein a bank establishes a credit limit that represents the maximum amount of money that a client can borrow. The client can access the money as needed, use it for whatever purpose, and pay interest only on the amount that has been used up.
A line of credit can either be revolving or non-revolving. With a revolving line of credit, the pool of available credit is replenished once the payments have been settled. In this manner, a revolving line of credit works much like a credit card. Make sure to ask our agents about taking out a revolving line of credit from Robinsons Bank and how it can help with the financial needs of your business.
Try Invoice Financing
Another easy way for business entrepreneurs to obtain money quickly is by relying on what is known as invoice financing. It’s a class of asset-based finance facilities whose basic principle involves businesses borrowing money against their outstanding invoices—essentially the amounts of money that customers have yet to pay them.
It is often the case that when businesses provide goods or services to B2B customers, they can do so on credit, which means the money due is not always paid on time. There may be other reasons why collections can get delayed, like when customers pay at different times. Nevertheless, the end result is always not ideal for the business involved because their money is essentially tied down instead of being put to good use.
With invoice financing, a business can submit or sell their invoices to a third party, who can then extend a loan representing a percentage or the total amount of these invoices. The money can then be used for a range of purposes, whether it’s paying for office rent, covering employee payroll, or something else.
Consider Purchase Order Financing
In exploring the viability of invoice financing, you may have also encountered another business financing option: purchase order financing. A purchase order is an official document given by a customer to a business detailing the types, quantities, and prices of products or services they intend to buy. It essentially signifies the commitment to pay the business when the service or product is delivered in the future.
Purchase order financing becomes helpful when a business needs to avoid depleting their cash reserves due to their obligation to pay their external suppliers. This can happen, for example, when they receive an unexpectedly large amount of purchase orders from customers. Purchase order financing is helpful when a business wants to avoid declining purchase orders simply because they don’t have enough capital to pay suppliers outright. In this sense, purchase order financing is different from invoice financing because you get the financing even before the invoices or accounts receivables are generated.
Like invoice financing, purchase order financing is typically offered by banks and lending institutions.
Take Out a Personal Loan
If you thought that a personal loan is only for personal expenses, you’re quite mistaken. Personal loans can also be used to finance your entrepreneurial needs, and they’re quite ideal if you only need a relatively small amount of money.
These multi-purpose financial products are also available from a lot of sources, including banks, private lending institutions, microfinance institutions, credit card companies, and even government agencies like the social Security System (SSS), the Government Service Insurance System (GSIS), the Home Development Mutual Fund (Pag-IBIG Fund), the Department of Trade and Industry (DTI), and the National Anti-Poverty Commission.
Personal loans can also be either secured or unsecured, and the terms and interest rates you’ll end up with can depend on a number of factors, like your creditworthiness and your personal income.
Liquidate Your Stagnant Assets
Sometimes, you don’t even have to look far in order to find possible sources of financing for the business idea you have in mind or the business expansion you’ve been planning for. Sometimes, they’re right under your nose. That relatively old car that your family doesn’t want anymore? That valuable collection of old toys that you no longer need? Those heirloom jewelry that once belonged to your grandmother? All these things are assets that you can liquidate in order to get the funds you need. Other things you can sell include clothing, furniture, electronics, works of art, and any type of luxury goods.
Consider Equity Financing
In the Philippines, debt financing has been the favored method of aspiring and existing entrepreneurs when it comes to raising capital for their business. It’s understandable, of course, considering its advantages, chief among which is the fact that the financier will never have control over the business being financed. An entrepreneur’s relationship with their creditor ends as soon as the debt obligations have been paid for.
Equity financing is different in that the entrepreneur agrees to sell shares of the company in exchange for the money they need. This means the financier will essentially become a co-owner of the business. Today, more and more Filipinos are looking into this kind of financing as a viable means of getting the funds they require. In a way, it’s beneficial because it’s an easy way to get huge amounts of money that can be used immediately for the benefit of the business. It also doesn’t place any additional financial encumbrance on the business because—unlike with many types of loans—the company will not need to make regular payments.
There are different ways to obtain equity financing. You can sell stake in your company to family and friends, for example, or you can look for venture capitalists to support your venture. These are companies that typically provide funding to startups with great potential. Of course, the downside to equity financing is losing part of the control you have over your business. With every major decision you need to make, you’ll have to consult your new business partners first since they already have a stake in your company.
Crowdfund Your Business Idea
Crowdfunding is the process of raising a huge amount of money through small contributions made by a large number of individuals. These days, people crowdfund for a lot of things, most notably for charity and for creative projects that are likely to benefit people’s lives. For years, the online public benefit platform Kickstarter.com has been the face of crowdfunding globally, but now, there are also Philippine- and Southeast Asia-based crowdfunding platforms that can help you realize your big ideas.
Earlier, in July 2019, crowdfunding has become an even more viable option for startups and small and medium enterprises in the Philippines when the Securities and Exchange Commission (SEC) finally approved the rules and regulations on crowdfunding, affording aspiring entrepreneurs better access to funding while providing the public more investment opportunities.
Ready to take your business idea to the next level? Consider the financing options detailed above and you may soon find yourself at the helm of the next hottest SME or startup in the Philippines.