For a Filipino business owner, access to credit is vital for growth. While traditional banks and government agencies are often the first choice, they are not the only ones. Lending companies are a powerful alternative that can provide a faster and more accessible source of credit. These companies operate differently from traditional banks and offer a variety of loan products that are specifically designed for small and medium-sized enterprises (SMEs). This guide will provide a detailed overview of the benefits, drawbacks, and the process of getting a business loan from a lending company.
Understanding Lending Companies vs. Banks
To make an informed decision, it is essential to understand the key differences between a lending company and a traditional bank. While both provide loans, their regulations, their lending models, and their overall approach to risk are vastly different.
The Regulation and Function of Each
A lending company is a financial institution that is regulated by the Securities and Exchange Commission (SEC). It is not a deposit-taking institution, which means it cannot accept money from the public in the form of deposits. Its primary function is to provide loans to individuals and businesses. Lending companies are often smaller, more agile, and have a faster loan processing time. Their lending models are often more flexible and are not as rigid as a traditional bank’s.
A traditional bank, on the other hand, is a financial institution that is regulated by the Bangko Sentral ng Pilipinas (BSP). It is a deposit-taking institution, which means it can accept money from the public and lend it out. A bank’s lending model is often more conservative, and its requirements are more stringent. This is because banks are dealing with the public’s money and are required by law to have a higher level of financial stability. A bank loan often has a lower interest rate, but it can take a lot longer to get approved.
The key difference between a lending company and a bank is their regulation and their function. A lending company is a specialized financial institution that is focused on providing loans, while a bank is a more comprehensive financial institution that provides a wide range of services, including deposits, loans, and other financial products.
Benefits and Drawbacks of Lending Companies
One of the most significant benefits of a lending company loan is the speed of approval. The application process is often faster and less complicated than a bank loan, with some loans being approved in as little as a few days. The requirements are also often more lenient, which makes them a great option for a new business that may not have a long track record or collateral. A lending company may also be more willing to lend to a business that has a high volume of digital transactions, even without a long financial history.
However, a lending company loan also has its drawbacks. The interest rates are often higher than those of a traditional bank. This is because a lending company is taking on a higher level of risk, as it is lending to businesses that may not be able to get a loan from a bank. Lending companies may also have higher fees and charges, and they may not have the same level of security and transparency as a bank. For this reason, it is essential to do your due diligence and choose a reputable lending company.
The best lending company for your business depends on your specific needs. If you need a quick and convenient source of funds for an urgent need, a lending company loan is a great option. If you can wait a little longer and can meet the strict requirements of a bank, a bank loan may be a more cost-effective option.
The Process and Best Practices
Once you have decided to get a loan from a lending company, the next step is to prepare for the application process. While the process is often more lenient than a bank loan, it is still a careful process that requires a lot of preparation.
Navigating the Application Process
The application process for a lending company loan is typically very straightforward. Most lending companies have an online application process that you can complete from the comfort of your home. You will need to provide a variety of documents, including your business’s legal papers, such as your DTI or SEC Business Registration, and your latest Audited Financial Statements (AFS) and Income Tax Returns (ITR). Some lending companies may also require you to provide a business plan and a list of your suppliers and customers.
The lending company will then conduct a credit evaluation and a due diligence process. This involves a credit check, a verification of your documents, and a review of your business’s financial health. Some lending companies may also conduct a site visit to your business premises to verify its existence and operations. With a fast and efficient application process, you can get a loan approved in as little as a few days.
You should also be aware that a lending company may require you to provide a post-dated check or an auto-debit arrangement for your monthly payments. This is a common practice that helps the lending company to manage its risk.
Choosing the Right Lending Company
Choosing the right lending company is a critical step in the process. You should look for a lending company that has a good reputation and a long track record of providing loans to businesses. You should also compare the interest rates and the fees of each lending company before you apply for a loan. Some reputable lending companies in the Philippines that offer business loans include Esquire Financing Inc., First Circle, and Seedin Technology.
You should also read the loan agreement carefully before you sign on the dotted line. The loan agreement will outline the interest rate, the fees, the repayment terms, and the penalties for late payments. You should also be aware of any hidden fees or charges that may not be disclosed in the loan agreement. By doing your due diligence and choosing a reputable lending company, you can get the funding you need without any surprises.
Conclusion
Getting a business loan from a lending company is a powerful alternative for a business that needs a quick and convenient source of credit. While the interest rates are often higher than those of a bank, the faster approval process and the more lenient requirements make a lending company loan an excellent option for a new or small business. By understanding the benefits and drawbacks of a lending company loan and by choosing a reputable lender, you can get the funding you need to take your business to the next level.
