People are always told that money makes the world go round, but the hard truth is, many of us don’t have even have enough of it to support our day-to-day needs. As a student, parent, a regular income earner, or even as an entrepreneur you must know that money is hard to come by in large sums, and it is even harder to save it as the costs of daily necessities—whether at school, home, work, or business—all go up. No matter how much cash you have saved on your own, you may not be able to pool a lot of it toward big-ticket purchases for your business or your personal expenses.
In situations like these, borrowing money from the bank might seem like the farthest thing from your mind. Perhaps you don’t like being indebted, you fear being remiss in your repayments, or you think it’s too big a responsibility for you to take on for yourself or on behalf of your business. However, with the kind of lending environment we have today, that kind of mentality should change.
Contrary to what people believe, applying for bank loans is a much less troublesome process than it used to be. With the right factors at play, obtaining a bank loan may be one of the wisest and timeliest decisions you’ll make for either your personal or your business-related finances.
If you get approved for a bank loan, it means that you will have to pay interest, or a certain percentage of the principal loan amount, in order to compensate the bank for lending you the money. This arrangement may prove beneficial to you for the following reasons:
- You won’t need to spend years, or even decades, saving up for costly one-time purchases;
- You’ll be able to pay off important purchases immediately;
- You can better allocate money for all your expenses;
- You can remain in good standing with the people and institutions you transact with on a daily basis (such as your clients, your customers, your utility providers, your landlord, the educational institutions in which you or your loved ones are enrolled, and others), and;
- You can use the loan as a springboard to earn other financial privileges with your issuing bank.
Banks in the Philippines typically offer loans in two categories: (1) consumer loans, and (2) commercial loans. For more information on the types of loans that fall under these categories, and how to prepare for your own loan application in the near future, read on below!
A consumer loan is a type of loan available to individuals so that they can finance specific types of expenses, e.g. the purchase of a real estate property, the acquisition of a vehicle, and the like. The bank acts a creditor for loans that are either secured (backed by collateral, like the borrower’s existent assets) or unsecured (without need for collateral).
For Filipinos looking to apply for a consumer loan, the following are currently offered by top banking institutions in the Philippines:
- Personal loans. Among the consumer loans available in the country, personal loans are the most flexible. A personal loan is a multipurpose loan that can be used for just about any daily need, such as paying for electricity, water, and telecommunications bills; paying for groceries or medicines; or settling outstanding debts. Some personal loans, like salary loan programs, are facilitated by employers; the employees need only to apply to their company’s loan program with the issuing bank, and the repayment is deducted from their salaries.
- Student loans. Student loans are now offered by select universities in partnership with banks like the Development Bank of the Philippines, one of the country’s foremost state-owned banks. In the case of student loans, it is the universities who oversee the students’ application process for the loan. Students who are deemed eligible for the program, who are in good academic standing, and who are in need of the extra funding can use the loan to pay for tuition and other school-related expenses.
- Home loans or mortgages. Home loans can be used for the purchase of one’s own house and lot, for a vacant lot, or for a condominium or small townhouse unit. The money from a home loan can also be directed towards home construction or renovation efforts, or to establish home equity (the homeowner’s interest in their property). These home loans prove extremely valuable to Filipinos, as the markets for housing and real estate are often very tenuous, and it can sometimes be hard to put a roof over one’s head.
- Auto loans. Auto loans enable the borrower to purchase a brand-new vehicle, purchase a second vehicle, or refinance a vehicle that they have already bought. The amount of money that a borrower has to put aside for the vehicle’s amortization depends on the down payment, the type of vehicle, and the number of months included in the payment term. Among other bank loans, auto loan programs often see the most applications, as many Filipinos desire to have their own cars to combat the traffic problems experienced by commuters in many Philippine cities.
- Motorcycle loans. Similarly to auto loans, motorcycle loans allow for the purchase of a motor vehicle on flexible terms. Motor scooters and Vespa-type motorcycles aren’t the only motor vehicles that can be financed, however; some banks also allow for the financing of big bikes, tricycles, and non-conventional two-wheeler or three-wheeler vehicles as well. Through the loan, Filipino bike owners can skirt traffic, do deliveries, and ride around the metro in a more fuel-efficient manner compared to driving a car.
On the other hand, a commercial loan is a type of loan that is used exclusively for business purposes. Business entities can opt to apply for loans in order to garner capital for their day-to-day operations, to keep company bills paid on time, or to fund the purchase of equipment for facilities, among others. Banks take on bigger risks from commercial loans than consumer loans, so you can expect your bank to be quite stringent on your business’s eligibility and documentation requirements if you are applying for a commercial loan.
For Filipino businesses exploring different options for borrowing money, the following types of commercial loan are offered by banks in the country.
- Revolving line of credit. Revolving line of credit is a financial arrangement in which a bank issues a maximum credit limit to a business. So long as they do not exceed this limit, the business can use the credit to fund purchases at any time and then borrow that amount again after repayment—much like how an individual would use a credit card. This kind of arrangement proves appealing to businesses for its open-ended nature; the credit can be used to buy essential business goods, or just to ensure that there is a consistent cash flow.
- Accounts receivable financing. This type of arrangement allows a business to borrow money from the bank against its outstanding invoices, or amounts that have yet to be paid to them by their customers. When receivable financing is in place, it’s as if a business has access to “early payments” from their customer transactions. That, in turn, means spending doesn’t have to slow down even if there’s no immediate cash yet from customers.
- Fixed-rate loans. In a fixed-rate loan or a term loan, a business can expect to pay the same amount of interest until the loan comes to maturity. Both the principal amount on the loan and the rate of interest are set in contract by the borrower and the lender, and the borrower need only to meet the payment schedule. Many businesses opt for fixed-rate loans because they make expenditures more predictable. They see it as a big advantage to know exactly how much interest they’ll be paying until the loan ends, and they can therefore set the rest of the business budget accordingly.
- Bills purchase line. Through this arrangement, a business can liquidate checks deposited to their name prior to local or regional clearing. This saves businesses time on waiting for their checks to clear, which means that big amounts of money paid to them via check can be used immediately. There are Philippine banks that offer bills purchase lines on flexible terms and free of collateral.
- Equipment loans. As the term implies, equipment loans are loans that can be used to finance business equipment. For a manufacturing company, this may be for equipment to be used at a factory; for a restaurant business, it may be for furniture and kitchenware. This kind of loan will make it easy for a fledgling business to foot their equipment purchases, which may deplete their budget if made upfront. The loan arrangement will allow them to spread out payments more evenly, and, at the same time, preserve cash for other business-related expenses.
- Microfinancing is the term for financial services offered to lower-income earners and smaller businesses, who would otherwise not have access to conventional banking due to poverty. These services often cover creation of new bank accounts, micro-credit, and micro-insurance policies. Microfinancing can be of great help not only in sustaining small business activity, but uplifting the livelihood of the borrowers and opening their doors toward greater levels of financial success.
Tips on Applying for the Bank Loan of Your Choice
If you are preparing to apply for a loan, just know that it won’t be approved overnight. Bank loans are long-term commitments that can take place over the period of a year to a decade, and therefore there’s a bit of legwork you will need to clear before being able to borrow money.
To get the most out of any loan arrangement with a bank, whether it is for yourself or on behalf of your business, it would be helpful to do the following:
- Know the requirements in advance. Once you’ve narrowed it down to your choice of bank, find out what the conditions are, if you are eligible for the type of loan, and what requirements will be asked of you. Luckily, this is often just a matter of visiting your nearest branch or searching the bank’s website. The bank should be happy to entertain any questions you have about the loan.
- Prepare the documents. Compile everything you’ll need for the type of loan you want to apply for: government-issued IDs, certificates of employment, annual income tax return (ITR), copies of your business permit, and the like. It would be good to have both hard copies and soft copies for yourself and for the bank.
- Prove your trustworthiness as a borrower. To increase your chances of being lent significant amounts of money, strive to be seen by the bank as a credible borrower. In order to give this impression, you should demonstrate skills with managing money—for example, you can prove to the bank that you pay your credit card bills on time, or that you have no outstanding debts. If the bank deems you capable of fulfilling the loan’s terms, then they will likely award you the loan.
All in all, there’s no need to be intimidated by the idea of borrowing money from the bank. In many instances, it’s a good thing to have a line open to borrowed funds—they can make a big difference in maintaining your cash flow, keeping you in the good graces of others, and helping you fulfill your dreams now instead of later. Hopefully, your bank loan will offer a chance to improve your money management skills, improve your quality of life, and help you (and those around you) achieve full financial freedom!