Business Loans

5 Types of Collateral You Can Use to Secure a Business Loan

Small businesses often start out with poor credit scores, which affects their ability to take out a business loan. However, you can boost your chances of getting approved for a loan through a collateral loan. But, what is a collateral loan?

A collateral loan is a secured business loan where you pledge assets as repayment to improve your creditworthiness. This will serve as the lender’s safety net if you, as a borrower, default on your loan and cannot pay.

5 Types of Collateral for a Business Loan 

If you need business funding to finance your day-to-day operations, expansion, or a piece of equipment, below are five types of collateral you can use to secure a business loan. 

1. Real Estate

A real estate or home equity collateral is any property you own, including your family home, lots, buildings, or commercial lands. This collateral is common since home equity is easily accessible to most business owners. It’s also ideal for lenders as it has a high value with low depreciation risks.

If you default on payments, lenders reserve the right to take ownership of your real estate and sell them to recover the losses quickly. Therefore, you’ll need to assess your real estate properties and choose one that holds the least value in your life but can back up the amount you’re trying to loan.

2. Business Equipment

If you’re planning to purchase business equipment using a loan, that piece of equipment can serve as your collateral. This is relatively low-risk, especially for construction or manufacturing companies. You can also put up your printers, computers, or copiers to back up payments if you default. 

Although this is less risky than putting up your family home as collateral, you may only lend a small amount as lenders will take more depreciation risk. They’ll likely ask for your equipment’s receipt to assess the value, so check the depreciation of the equipment you’re putting up as collateral.

3. Inventory

This collateral may only work if you’re a product-based company like retail or e-commerce shops. You can use the items in your inventory as backup payments if you fail to hold your end of the bargain. However, you’ll need to ensure that your inventory can back up your lending amount. 

Lenders may ask a third-party auditor to assess the value of your inventory, especially if it is hard to sell. Other considerations also need to be taken, like liquidation value and future depreciation. 

This is risky collateral on your end as it may directly affect your revenue stream and not earn from those inventory losses. The drop in sales may negatively impact your other debts and expenses, so evaluate all your financing options before taking out an inventory loan.

4. Invoices

Unpaid invoices can affect your cash flow, which may cause issues in paying for your expenses and the like. You can put the invoices up as collateral to get cash upfront without waiting for a long period. It’s a good option for borrowers with a low credit score since viability will be based on the worth of outstanding invoices. 

You can sell your unpaid invoices to a factoring company and receive around 80% to 95% of your invoice value. However, you’ll need to pay a fee of 0.50%5% of your invoice value, so you may earn less than you would have if you collected the invoices yourself. 

With that said, invoice financing is a better option than inventory loans since it gives you a flexible and secure payment scheme while ensuring you have other revenue sources.

5. Cash

Traditional lenders, such as banks favor this collateral as it’s the most liquid asset a person can have. On top of this, they won’t have to go through the trouble of selling a physical asset just to recover their losses.

The collateral for a business loan comes from extra cash from your bank accounts, whether a business or personal account, to back up your payments when you default. With this, you can take advantage of low interest rates and high loan amounts, corresponding to the money you have in your bank.

Collateral Business Loans FAQs

  • How much collateral is needed for a business loan? 

As a rule of thumb, any assets you’ll pledge as collateral should at least have the same or even surpass the worth of the loan you want to borrow. However, auditors will still have to assess their value. They’ll most likely appraise the collateral’s value by 80%90% of the loan amount to consider other risk factors. So, as long as your collateral does not go below the loaning amount, you can get a business loan.

  • How do I get a business loan without collateral? 

You may need to get an unsecured business loan instead, which you can typically get from online lenders, banks, or credit unions.

Keep in mind that traditional lenders like banks require good business and personal credit scores, so you may have trouble getting an unsecured loan if you have poor credit. In this case, you can seek financial assistance from an online lender like JK Capital which offers non-collateral business loans with fast approval and minimal requirements.  

  • Does collateral improve my approval odds? 

While pledging assets can approve your odds, you’ll need to match the value of your collateral to your loan amount to improve the terms of your loan. You’ll also need to consider the 5 Cs of creditcapacity, capital, collateral, condition, and characterto determine your odds of approval.

Finance Your Business Wisely

It may be difficult to get loan approval with a low credit score, but it’s not entirely impossible—you can pledge collateral to improve your chances. However, you’ll need to carefully deliberate when choosing an asset to pledge as you’ll need to consider your risk factors and the value it will hold to the lenders. 

If you’re not willing to use collateral, you can always look for lending companies that offer unsecured loans like JK Capital. Check out our no-collateral business loans to find out more.

Business Loans

5 Government Loans for Small Businesses in the Philippines

With the COVID-19 Assistance to Restart Enterprises (CARES) program ending last January 31, 2022, the number of government loans small businesses can apply for shrinks. This can be worrisome, considering how much COVID-19 has affected small businesses in the Philippines

All is not lost, however. There are still several government assistance programs for small businesses in the Philippines recovering from the pandemic. The following section will provide a rundown of everything you need to know about government loans you may apply for. 

5 Government Loans for Small Businesses in the Philippines

  1. Pondo sa Pagbabago at Pag-Asenso (P3)
  2. RISE UP Turismo
  3. Helping the Economy Recover through OFW Enterprise Startups (HEROES)
  4. MSME Credit Guarantee Program (MCGP)
  5. Sustaining Trade Access to Primary Food and Link to Enterprises (STAPLES)

These government loans for small businesses in the Philippines are offered for various industries. Below is information about the five programs, their eligibility, terms, and requirements.  


Pondo sa Pagbabago at Pag-Asenso (P3)

Informal lending is a common practice among micro-entrepreneurs. One of the most financially harmful is known as “5-6” lending, where borrowers have to pay up to 20% interest on their loan every month. 

To prevent such practices and provide micro-entrepreneurs with convenient financing options, the government introduced the Pondo sa Pagbabago at Pag-asenso (P3) program. 

Who are eligible?

The P3 program was designed for micro-entrepreneurs who had an existing business before the pandemic. These include market vendors, sari-sari store owners, and stall owners, to name a few.

What are the terms?

  • Loanable amount: P5,000 – P200,000 (depending on the size of your business and ability to pay)
  • Interest rate: 2.5% monthly 
  • Loan term: If you intend to loan below P50,000, the term is capped at 18 months; for loans over P50,000, the maximum term is 30 months.  
  • Grace period: 6 months

What are the documentary requirements? 

  • Accomplished P3 loan application 
  • Proof of legitimate business running for at least one year
  • Proof of one year of residence
  • Valid government ID
  • Barangay clearance
  • If you intend to loan more than P50,000, you will need a DTI Business Name Registration Certificate 

To learn more about the P3 program and to apply, visit the DTI P3 website.


RISE UP Turismo

It’s no surprise that tourism was one of the most vulnerable sectors due to local and global lockdowns during the pandemic. As a way to stimulate recovery and growth in the sector, the Small Business Corporation (SB Corp) created the RISE UP Turismo Loan, which follows up on the CARES for Tourism Rehabilitation and Vitalization of Enterprises and Livelihood (CARES for TRAVEL) that launched during the height of the pandemic. 

This program is targeted toward businesses in the tourism sector that lost revenues over the pandemic. The loan’s coverage includes all tourism-related enterprises, whether DOT-accredited or not, such as transportation, events organizing, and souvenir shops, among others.

Who are eligible?

Three main business groups are eligible for the program: primary tourism enterprises (including hotels, resorts, and tour agencies); secondary tourism enterprises (including restaurants and tourist shops), and tourism support services. 

What are the terms?

There are two types of loans under the RISE UP Turismo Loan: the SME TURISMO Loan and the Micro TURISMO Loan, each with minor differences.

For the SME TURISMO Loan:

  • Loanable amount: Maximum of P5 million
  • Basis of loan amount: Possibly up to 15% of prior years’ sales; loans over P3 million will be based on your BIR-filed financial statements 
  • Interest rate: A one-time service charge ranging from 4% to 8%, depending on your repayment term.
  • Loan term: Payable monthly for up to 4 years
  • Grace period: Up to half of the loan term, on principal only

For the Micro TURISMO Loan:

  • Loanable amount: Maximum of P300,000 per borrower 
  • Basis of loan amount: Up to 20% of your existing business assets 
  • Interest rate: A one-time service charge ranging from 4% to 8%, depending on your repayment term.
  • Loan term: Payable monthly for up to 4 years 
  • Grace period: Up to half of the loan term on principal only  

What are the documentary requirements?

Both loan types will require the following documents:

  • Government-issued ID
  • Barangay permit for loans not more than P100,000
  • BMBE Certificate or Mayor’s Permit for loans more than P100,000
  • Photos and a 1-minute video of business operations and assets
  • Corporate documents (if applicable)
  • At least one year of business operation, as evidenced by business permits 

To register and view the complete list of eligible enterprises, visit the RISE UP Turismo Loan page of the SB Corp website.


Helping the Economy Recover through OFW Enterprise Startups (HEROES)

Businesses worldwide were forced to shut their doors amid the pandemic, meaning many overseas Filipino workers lost their jobs. A Philippine Statistics Authority survey found that the OFW population declined by almost 19% in 2020. 

To help unemployed, repatriated OFWs, the government created the Helping the Economy Recover Thru OFW Enterprise Start-Ups program. This gives OFWs the chance to start their own business and rebuild their lives in their home country.

Who are eligible?

Land-based and non-professional OFWs who returned home due to the layoffs during the COVID-19 pandemic may apply for this loan. 

What are the terms?

  • Loanable amount: Repatriated OFWs may borrow from P30,000 up to P100,000
  • Interest rate: No interest nor collateral required
  • Grace period: Up to 12 months

What are the documentary requirements?

  • Certificate of Completion of Training issued by the Philippine Trade Training Center (PTTC)
  • Scanned copy of passport
  • Video presentation (You will be guided on how to accomplish this during PTTC training)
  • Business Model Canvass (Required for loan amounts exceeding P50,000)

To learn more about the program and the free PTTC one-day online training, visit the HEROES page of the Small Business Corporation website. 


MSME Credit Guarantee Program (MCGP)

Micro, small and medium enterprises (MSMEs) struggling with limited working capital after the pandemic may consider getting bank loans. However, not all MSMEs are capable of paying these back, limiting the loans they can apply for. 

This is why the Philippine Guarantee Corporation partnered with various banks to create the MSME Credit Guarantee Program to help MSMEs apply for loans that might have become out of their reach. 

Who are eligible?

This program was created for micro to medium-sized enterprise owners who have been affected by the COVID-19 pandemic. 

What are the terms?

  • Loanable amount: Maximum of P50 million per borrower; Loans exceeding that amount will be subject to the approval of PhilGuarantee based on the guidelines for their Regular Credit Guarantee Program. 
  • Loan term: 1 to 5 years
  • Interest rate: Interest rates, collaterals, and securities will depend on the lending bank or financial institution.
  • Guarantee limit: 50% of the principal loan amount
  • Guarantee term: 1 year 
  • Additional fees: Each amendment will cost P5,000

What are the documentary requirements?

The requirements will vary depending on where you apply for this loan. Contact a PhilGuarantee-partnered bank near you to inquire about the necessary application documents. 

You can find out more about the program on the official PhilGuarantee website.  


Sustaining Trade Access to Primary Food and Link to Enterprises (STAPLES)

The food business sector not only suffered from the lack of revenue due to lockdowns but also because of the increased expenses of incorporating social distancing and sanitation measures. 

To assist affected food businesses and food supply chains, the government created Sustaining Trade Access to Primary Food and Link to Enterprises (STAPLES) to help small businesses within the sector replenish their working capital and financially recover.

Who are eligible?

  • MSMEs working in the retail food sector 
  • MSMEs or applicants with no negative payment or unresolved major negative credit history. 
  • Part of the food supply chain of an SBCorp-accredited FMCG food manufacturer
  • Your business must be 100% Filipino owned or, if your business has foreign ownership, at least 60% Filipino owned. 

What are the terms?

The amount you can borrow will depend on your annual sales. The terms, such as repayment and service fees, will also depend on the size of your business.

For small sari-sari store owners:

  • Minimum annual sale: P500,000
  • Loan amount: 2% of annual sales (Minimum of P10,000)
  • Repayment Term: 3 months
  • Service fee: 3%

For big sari-sari stores, mini groceries, and convenience stores:

  • Minimum annual sale: P2 million
  • Loan amount: 2.25% of annual sales (Minimum of P45,000)
  • Repayment term: 4 months
  • Service fee: 3%

For medium-sized grocery, convenience stores, or dealers and small distributors:

  • Minimum annual sale: P20 million
  • Loan amount: 2.5% of annual sales (Minimum of P500,000; maximum of P5 million)
  • Repayment term: 6 or 12 months
  • Service fee: 3% if 6-month repayment, 6% if 12-month repayment

What are the documentary requirements?

Depending on the size of your business, you will need a different set of requirements. 

Requirements for small sari-sari store owners:

  • Valid ID
  • Bank or digital bank account
  • Barangay business permit for 2019 or 2020
  • Two photos of business signage, inventories, or fixed assets (submit in JPEG format)

Requirements for big sari-sari stores, mini groceries, and convenience stores:

  • Valid ID
  • Bank or digital bank account
  • Mayor’s permit for 2019 or 2020
  • Two photos of business signage, inventories, or fixed assets (submit in JPEG format)

Requirements for medium-sized grocery, convenience stores, or dealers and small distributors:

  • Valid ID 
  • Bank or digital bank account
  • Mayor’s permit for either 2018, 2019, or 2020
  • If your intended loan exceeds P1 million, you must submit the latest BIR-filed Balance Sheet to certify that your business is not a large enterprise.

To learn more about the loan program and how to register, visit the STAPLES page on the Small Business Corporation website. 

Choose the Right Loan for You 

If your small business is struggling to get back on its feet after the pandemic or any other crisis, applying for financial aid can be a big help. These five government assistance programs for small businesses in the Philippines can be just what you need to recover what you lost over the pandemic. 

Of course, it’s always important to do your research and consider other financers before applying for a business loan. The government isn’t the only place you can go to for financial help.

Check out JK Capital, which provides loans for small businesses to help you get back on your feet and succeed in the new normal. 

Business Loans Guides

How to Get a Business Loan in the Philippines: A 5-Step Guide

Funding is one of the most important things to consider for a business owner. Many entrepreneurs are hesitant to take out a loan for many reasons. Some don’t want to go through the hassle of application, while others are afraid of building up a debt they can’t afford to pay.

Instead, they use their own money to fund their operations, which can be personally detrimental if your business fails. 

However, applying for a loan to secure business funding is necessary to avoid risking your finances. The following section provides a list of loan requirements and a five-step guide on how to apply for a business loan in the Philippines.

Common Business Loan Requirements

Like with any business-related venture, there are requirements that you will need to submit before receiving a loan. Below is a list of some of the common business loan application requirements. 

  1. Government-issued ID
  2. Signed and completed loan application form
  3. Company profile or business background
  4. Business permit or DTI/SEC registration certificate
  5. BIR Certificate of Registration
  6. Latest audited financial statements
  7. List of major suppliers and customers with details about dealings
  8. Proof of business billing address (Mayor’s Permit, Lease Contract, or Utility Bills)

How to Apply for A Business Loan

  1. Decide how much money you need to borrow
  2. Assess your eligibility
  3. Determine how much and how regularly you can make payments
  4. Choose the best type of loan for your business
  5. Compare lenders

There are several types of business loans in the Philippines, but what are the steps to apply for one? This section is a quick rundown of the five steps you need to take.

1. Decide how much money you need to borrow

An essential step for any loan application is determining how much money you need to borrow. Applying for too high an amount can make the lender doubt your ability to repay, while an amount too small can immediately get your loan application rejected. 

It sounds counterintuitive for lenders to prioritize people who borrow a bigger sum, but too little of a loan isn’t generally worth it for banks since they won’t profit from it. Instead, they would approve someone who needs to borrow more, but still not to the point where it’s impossible for them to repay. 

You need to do some math to see how much money you need from the lender while finding a middle ground to convince them to approve your loan.

2. Assess your eligibility

When applying for any loan, eligibility plays a crucial role. Your credit score, business history, and cash flow are the three primary factors that will determine your chances of getting approved. 

Credit scores represent your creditworthiness, showing the lender that you are trustworthy enough to repay the loan. 

Business history represents the growth of your enterprise over time. Lending companies will look at this to determine if the business is profitable enough, is relevant to the market, and has potential to grow. Typically, a company needs to have one to two years of operations to qualify for a loan.

Lastly, cash flow is how much money your business is earning. Many lenders will require a minimum annual revenue, so it’s best to check your potential lenders’ requirements.

3. Determine how much and how regularly you can make payments

As previously mentioned, the amount of money your business earns annually affects your chances of loan approval. Some lenders require daily repayments, so it is crucial to factor that in. Determine how much you could afford to pay monthly or daily. Your business should aim to have at least 1.25 times your total expenses, including your repayment. 

4. Choose the best loan type for your business

Small and medium enterprises (SMEs) can apply for various loans, such as the following:

  • Term loans require you to pay monthly, with a fixed interest rate during the specified period. Traditional banks offer this kind of loan and can come with or without collateral. 
  • Short-term loans are for businesses that need financial support for short-term periods. They are payable within a year, and some lenders offer them online. 
  • Equipment loans are financing for machines and other equipment, such as vehicles, printers, etc. The equipment can act as collateral for the loan, meaning the lender can repossess it if you miss your payments. 
  • Invoice financing involves the lender using your account receivables as security for businesses that invoice clients. It is a reliable solution for short-term cash flow issues

5. Compare lenders

It’s always important not to rush any business decision. Take the time to analyze and research which lending company will work best for your business in both the long- and short-term. Inquire with multiple lenders, then compare the loan terms offered by each so that you can select one with the most favorable terms.

Apply for a Business Loan Today

As an entrepreneur, taking out a loan is a strategic and necessary move for the success of your business. This is funding you need to grow, whether it is to finance your day-to-day operations, equipment, or expansion. As such, you shouldn’t hesitate to apply for one because it’ll reap the rewards for you.

If you’re looking to apply for a business loan, look no further than JK Capital. We offer quick business loans with no collateral for SMEs. Apply online today and get the funding you need fast. 

Business Loans

Why Borrow from an Online Lending Company in the Philippines?

Adequate funding is the lifeblood of a growing business. However, it’s also one of the biggest hurdles business owners need to overcome.

Small companies, in particular, find it more challenging to get funding. Their loan applications may not get approved because banks or lenders see them as risky borrowers. They may be rejected due to poor credit history, poor business performance, or not being in the business long enough to build credibility.

If you’re seeking alternative options after being rejected for your bank loan, you might want to consider non-traditional funding such as an online lending company. Online lending companies offer more flexible terms and requirements and can be the key to securing the funding your small business needs.

Let this article guide you on why you should borrow from an online lending company in the Philippines. 

What are Online Loans?

Online loans are considered non-traditional loans provided by a private lender through digital channels. Those who need funding but fail to secure a conventional bank loan, such as small business owners, typically apply from non-banking financial institutions. 

For an online loan lender to legitimately operate in the Philippines, they must first register with the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI). Their registration protects borrowers against scams and fraud. 

Besides registration, legitimate lending companies must also comply with the Corporation Code, Lending Company Regulation Act, and other regulations.

Advantages of Online Loans

There is more to online loans than being alternatives to traditional banking loans. Online lending companies can provide a myriad of benefits for your small business, such as the following.

1. Fewer requirements

Online business loans in the Philippines have become more prominent due to their accessibility. Simply sending a clear photo of your government ID and other requirements are enough to qualify you to borrow. 

Additionally, most of them don’t require collateral. This means there’s no risk of you losing an asset when you default on the loan. At the most, online loan lenders may require you to present a certificate of employment if you’re looking to borrow high sums of money.

2. No credit requirement

Small-time entrepreneurs who haven’t built up a credible credit history yet may find it challenging to get approved by banks for small business loans. In contrast, online lenders are often more lenient regarding credit history. 

They typically don’t scrutinize borrowers’ credit scores or history. Instead, they consider other factors like occupation and education to determine approval, making online loans more viable for small business owners with poor credit history.

3. Fast approval

The online loan process is quicker and less strict than traditional loan systems. Some online lenders respond to your application within 24 hours of submission. Although the realistic timeline for approval is from 2 to 3 business days, it’s still substantially faster than most banks.

Additionally, online loan lenders allow you to apply anytime, so small business owners can apply for funding immediately in case of an emergency.

4. Offer competitive rates

The lack of physical office space is one of the biggest reasons online lenders can offer competitive rates. Without a brick-and-mortar location to maintain, overhead fees are likely less or non-existent for some of them. This also enables them to provide more favorable loan terms.

5. Deposit bank account is not required

Online lending companies in the Philippines typically don’t require the borrower to have a deposit bank account, as loan proceeds can be disbursed through partner remittance centers. However, some lenders have the right to ask for a nominated bank account from the borrower for whatever reason.

6. More convenient

The application process of online lenders is typically more streamlined than banks because it is digital. All you have to do is submit the requirements through the lender’s website or via email, then wait for their response.

FAQs on Online Lending Companies

Are online loans legitimate?

Yes, online loans are legitimate. Before lenders can conduct business with potential borrowers, they’re required by law to register with the proper authorities like the DTI and SEC.

How do you pay for online loans?

Online loans can be paid through the same partner remittance centers in which the lenders disbursed the borrowed sum.

What happens to unpaid loans in the Philippines?

The offender of the unpaid loans may be subjected to late payment fees that can range from P200 to P600 monthly, or 7 to 10% of the loan amount, depending on which is higher. Additionally, a small business owner’s property may be subjected to repossession or foreclosure, depending on the loan’s terms.

Flexible Funding from Online Lending Companies

Online lenders aren’t just a quick fix for those who need cash flow injection. This non-traditional loan system can be advantageous for small businesses as it provides more lenient terms, reasonable rates, and fewer requirements to secure funding. 

If you need immediate financial solutions for your small business, consider JK Capital. Serving Philippine-based small companies since 2014, JK Capital provides quick, collateral-free loans to fund your business growth. For further inquiries about our services, contact us today. All of us are more than happy to help.