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Business Loans Guides

Online Loans in the Philippines: What SMEs Need to Know

Any aspiring entrepreneur today can start a business just by creating a page on social media or using an e-commerce platform. Due to the convenience of digital platforms, the number of registered online companies in the Philippines increased from 1,700 in January to March 2020 to 75,000 by the end of the year.  While starting online helps entrepreneurs save on costs, one thing remains certain: small- and medium-sized enterprises (SMEs) still need adequate funding to scale every aspect of their business—inventory, logistics, marketing, customer service, and many more. Banks are equipped to grant loans to SMEs, but stringent requirements and non-flexible terms make it difficult for budding entrepreneurs to secure funding. In fact, 77% of SMEs in the Philippines have been unable to secure any or sufficient funding on at least one or more occasions over the last five years. This is where online loans come into play. Online lending companies typically help SMEs secure funding through digital channels. Compared to conventional bank loans, online loans are more accessible as they have fewer requirements and faster approval. They’re ideal for SMEs needing emergency funds or having difficulty getting approval for bank loans. If you need more funding to scale your business, this infographic can help you learn about online loans in the Philippines and how to apply for them. Online Loans in the Philippines: What SMEs Need to Know

Online Lender Legitimacy and Regulation

Online lending companies in the Philippines must be registered with and licensed by the Securities and Exchange Commission (SEC) instead of the Bangko Sentral ng Pilipinas (BSP).  They’re required to obtain a Certificate of Authority (CoA) before they can offer loans. To get a CoA, lenders should fulfill the requirements in forming an ordinary stock corporation and have a minimum paid-up capital of ₱1 million. Once registered with the SEC, online lending companies should comply with different regulations, such as the Corporation Code, the Lending Company Regulation Act, and the Data Privacy Act, to keep customer data safe and secure. If an online lending company fails to comply with these laws or commits harassment, cyber libel, and unfair debt collection, the SEC and other government agencies will investigate the claim. It’s required to cooperate during the investigation. The online lending company would have to give up its licenses and pay exorbitant penalties if found guilty.  Even if an online lending company is registered with the SEC, you should still conduct thorough research before transacting with one. You can read the terms and conditions, look for customer reviews, and check its website and repayment schemes. If a company makes an offer that’s too good to be true, that’s usually a sign that it’s not as legitimate as you think.  You can also check this list of SEC-registered online lending companies to see if the lender you’re dealing with is legitimate.

Business and Documentary Requirements

Online loan requirements vary per lender, but below are some that they typically ask for: 
  • Online application form
  • Government IDs of business owner/s
  • Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI) registration
  • Bureau of Internal Revenue (BIR) registration
  • Proof of billing
  • Latest payslips for employed individuals or bank statements for self-employed individuals
  • Certificate of Employment (CoE) for employed individuals or Income Tax Return (ITR) for self-employed individuals
  • General Information Sheet (GIS) for corporations
For more specific requirements, you can check the website of the online lending company you plan to borrow from or directly contact them via phone or email. Some online lenders require borrowers to prove their age, place of residence, and properties such as cars and tech devices. Since these companies are available online, you can submit soft copies of your documents anytime via their app or website. This helps SME owners save time and costs from visiting in person when applying for loans.

Application Process

Applying for an online loan is usually fast and easy. Online lending companies can process and approve a loan in three to seven business days, which is faster compared to banks that take two to three months. Most online lenders also have relationship managers and customer support teams to assist you throughout the process. While the application process is different per lender, here are the basic steps that you need to accomplish:
  • Fill out the online form available on the lender’s website.
  • Upload the requirements.
  • Wait for the lender to contact you.
  • Wait for your loan disbursement.

Online Loan Terms

Before applying for an online, you need to consider some factors and align them with your business needs. Some of these include:

1. Loan duration

Online loans are ideal for SMEs that need quick or short-term funding. Online lenders allow SMEs to repay their loans within two weeks or a year. Some also offer biweekly or monthly repayment schemes where the borrower pays both interest and principal. SMEs that need short-term funding can also save on costs with online loans. Banks typically charge extra for early repayment or loan terminations to compensate for the interest they would’ve collected from you until your loan matures. These fees are typically 4–8% of your current outstanding balance.

2. Loan amount

Online lenders have different caps for their loans, but most offer somewhere between ₱50,000 and ₱10 million. This is in stark contrast to banks, which offer around ₱1 million to ₱20 million in loan amounts. The loan amount of online lenders may be small, but it’s perfect for SMEs that need quick funding and can repay within a few weeks or months.

3. Interest rates and processing fees

When it comes to interest and processing fees, banks are more modest because they have access to cheaper sources of funds, such as customer deposits. They can also maintain risks at lower levels. Their monthly interest rates are around 0.50% to 1.5%, with processing fees at 0.75% of the loan amount. Meanwhile, online lending companies offer monthly interest rates of around 1.99% to 4% and charge processing fees of 1.99% of the loan amount. Some online lending companies may charge other fees, which may not be published on their website or communicated to borrowers at the onset. When getting an online loan, ask your relationship manager or customer support representative about these fees to manage your financial expectations efficiently.

4. Minimum number of years in operation

Banks often grant loans to businesses that have been in operation for at least two to three years, with one year of profitable operations. Meanwhile, many online lending companies grant loans to those still in their first year of operations. This is ideal for SMEs that have seen growth in a short time and need funding to continue doing so.

What to Do if You’re Scammed or Harassed by an Illegal Online Lender

Online lending in the Philippines can be a bit of a minefield, as some illegal lenders are becoming smarter by the day, posing as legitimate companies. If you think you’re being scammed or harassed by an online lender, follow the steps below:
  • If the lender has a CoA to operate, file a complaint with the SEC.
  • Fill out the Complaint Form.
  • Attach all relevant documents or evidence to support your complaint.
  • Submit one Complaint Form per respondent company. 
  • Provide a valid government-issued ID.
  • Show evidence that you’ve exhausted all remedies against the company before filing your complaint.
  • If you have a complaint against a company without a CoA, you can email the Enforcement and Investor Protection Department at epd@sec.gov.ph.
  • If your data privacy rights were violated, contact the following agencies:
    1. National Privacy Commission (NPC) – complaints@privacy.gov.ph
    2. Philippine National Police (PNP) Anti-Cybercrime Group – acg@pnp.gov.ph and pnpacgcfcu@gmail.com
    3. National Bureau of Investigation (NBI) Cybercrime Division – https://www.facebook.com/NBI-Cyber-Crime-Division-105613618539830
    4. Department of Justice (DOJ) Office of Cybercrime – cybercrime@doj.gov.ph

Scale Your Business with an Online Loan Today

Online loans are easy solutions for SMEs that need quick, short-term funding. Not only will online loans help SMEs scale their business, but loans will also help build their credit score and improve their financial standing in the long run. Naturally, this will only be possible if you work with a legitimate online lending company. Before getting an online loan, conduct your research so that you won’t fall victim to scammers.  If you’re ready to secure an online loan, you can borrow from a reliable online lending company in the Philippines like JK Capital. We offer instant financial solutions to SMEs planning to go beyond their horizons. Check out our services to learn about our requirements and application process, or fill out our contact form for inquiries. 
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How to Calculate the Interest Rate on a Business Loan

Are you planning to apply for a business loan? Before you do, there are a few things you must consider first. On top of the list is the business loan interest rate. You need to take interest rates into account because they will determine the total amount of money you will owe and eventually have to pay. Knowing how to calculate the interest rate on a loan is helpful for business owners. But you need to understand what drives your rates up or down, so you can come up with ways to lower your interest and, consequently, the total cost of your business loan.

What is an Interest Rate?

Before we get to the nitty-gritty, let’s begin by defining the subject at hand. What is interest rate exactly? Essentially, interest rates let lenders earn from the loans they issue to worthy applicants. A payment agreement that stretches over a specified period will entail the borrower paying a portion of the principal amount owed and a portion of the interest rate every month. The loan agreement ends once both the principal amount and its corresponding interest rate have been paid. Paying for interest means you’re paying more than the amount you borrowed. As such, you want your interest rate to be as low as possible to minimize your overall expenses.

How to Calculate Interest Rate on a Loan

Think of interest rates as the cost of borrowing money. They come in two main categories: fixed and floating. The former stays constant throughout the loan term, whereas the latter fluctuates relative to a reference rate. Meanwhile, in terms of calculation, there are two more types, namely simple and compound. Simple interest calculation follows this formula:
Principal x interest rate x loan term
To illustrate, let’s say that you borrowed 10,000 that has to be paid in 2 years. The agreed interest rate is 3%. Therefore:
Simple interest: ₱10,000 x 3% x 2 = ₱600
This means you’ll be paying ₱600 on top of the ₱10,000 you borrowed. Your goal is to pay the combined portions of the principal loan and interest rate every month on time and in full. Otherwise, you might be charged a late payment fee, or your outstanding balance would gain interest. If the latter happens, you would have to contend with ballooning compound interest, which is basically interest on interest.

What Factors Affect Interest Rate?

The loan provider decides the interest rate they’ll offer to you, but they look into several factors, such as the following.

1. Market and inflation

Socio-political and economic factors affect people’s capacity to pay loans. That’s why loan providers factor these when determining interest rates. For instance, expect higher interest rates if there’s political unrest in your area of business or when the market you want to cater to is experiencing a downturn. For these reasons, timing is key. If possible, wait for these factors to stabilize before applying for a business loan.

2. Business history

It’s easier for existing brands to apply for a business loan, such as those looking to expand or branch out, because they already have a history of successful operations or fully repaid loans. Of course, first-time entrepreneurs can also apply for a business loan. However, they might need a foolproof business plan to convince loan providers of their merit. The business plan should prove that there’s a robust market for the business.

3. Company financials

Established businesses will have to show loan providers some documents that prove their financial sustainability. These may include asset and liability ledgers and tax returns. Meanwhile, lenders look at personal credit rating and history in the case of newbie entrepreneurs. If you fall into the latter category, improving your personal credit rating is in your best interest before applying for a business loan. One way to do so is by paying your credit card bills on time.

4. Collateral

Do you have valuable assets for collateral? If so, chances are you’ll receive a better loan interest offer. Assets like real estate, cars, and even artwork assure loan providers that there’s a way for them to recoup what you owe by way of collateral seizure in case you fail to pay up.

5. Loan product

You can either apply for a short- or long-term business loan. The longer the payment duration, the higher the interest rate. That’s because there’s a bigger risk that the loan may not be repaid. The business might go bankrupt even before the loan has matured. A shorter loan term would mean chipping off more on the principal loan amount every month, with a corresponding small interest rate. Make sure to choose a loan program that suits your priorities and financial capacity.

Apply for a Business Loan Today

Applying for a business loan requires careful planning, research, and consideration. Do not sign above the dotted line without comparing loan agreements from different providers. This way, you can ensure the best possible loan terms. If you’re a small business in need of a financial push, check out JK Capital’s business loans. Our loans have minimum requirements and provide fast approval, so you can jumpstart your business ASAP. Contact us today to secure business funding in 7 days or less. 
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Business Loans

Business Loan vs. Consumer Loan: Differences and Similarities

Many up-and-coming entrepreneurs apply for consumer loans to generate capital for their businesses since they are relatively easy to qualify for and quickly acquired. Although there is nothing wrong with using a personal loan for business purposes, it does have a few drawbacks. 

If you’re a small business owner and wondering, “when do we consider using personal loans for business?” you’ve come to the right place. In this article, we’ll discuss the differences between a business loan versus a consumer loan and explore the advantages of each.

What is the Difference Between a Consumer Loan and a Business Loan?

The primary purpose of a business loan is to fund business needs. They’re intended for purchasing revenue-generating investments or funding your business’s day-to-day operations. Business loans are also used for acquisitions, renovations, supply orders, payroll, and more.

Meanwhile, consumer loans are more flexible as they fund personal and business needs. They’re generally easier to obtain because lenders will only be looking at your own finances for approval. The most common examples of consumer loans are personal loans, auto loans, and home loans.

Now that you know the difference between a consumer loan and a business loan, let’s find out which one fits your needs best.

Business Loan vs. Consumer Loan

Exploring the topic of differences between business and consumer loans will help you paint a clear picture of the benefits and drawbacks each option may offer. For example, if you prefer a particular timeline for your loan payment, you can explore the terms of each loan.

Nowadays, you can get both short- and long-term consumer and business loans, which provide you with the opportunities below:

Long term loans

  • Lower monthly amortization
  • Larger loan amount
  • Lower Interest rates

Short term loans

  • Shorter time incurring interest
  • Easier to acquire
  • May help increase credit score

Before choosing a loan type, it is best to consider all the factors in your decision. These may include your financial history, business credit score, personal credit score, and long-term business objectives. These factors will help you understand which type of loan you qualify for and what works best for your situation.

Business Loans

1. Eligibility requirements

Most lenders will require a small business to have a stable and predictable cash flow to qualify for SME loans. In addition, they may require more paperwork such as financial statements, business plans, licenses, permits, etc.

2. Loan terms

Depending on your industry, business loans can be repaid over a more extended period, ranging from two to 20 years.

3. Loan amount

A business loan can provide a more significant loan amount compared to a consumer loan. For example, a small business loan may reach up to ₱10,000,000.

4. Interest rate

A business loan’s approval process is more thorough, giving lenders more confidence to provide lower interest rates than consumer loans.

Advantages of Business Loans

  • Separate finances – A business loan will aid personal protection and tax duties by separating your business finances from your personal finances.
  • Limited liability – In case of default or inability to pay, your liability with a business loan may be more limited compared to a personal loan.
  • Business credit – Paying back your business loans on time will help increase your business credit score. This allows you to get higher loan amounts and better terms for future loans.

Risks of Business Loans

  • Personal guarantee – Some business loans may require a personal guarantee to reduce the lender’s risk.
  • Loss of business assets – You may lose business assets such as equipment, real estate, and receivables if you default on a secured business loan.

Consumer Loans

1. Eligibility requirements

A consumer loan typically requires applicants to have good credit, a stable source of income, and a good debt-to-income ratio. Applicants who do not have good credit may take out a secured loan that requires collateral instead.

2. Loan terms

Generally, consumer loans have a short payment term, ranging from a few months to years.

3. Loan amount

Consumer loan amounts tend to be smaller than business loans and rarely exceed ₱3,000,000. You will want to consider business loans if you need a more significant loan amount.

4. Interest rate

A consumer loan usually has higher interest rates compared to a business loan. As a result, it is considered riskier for lenders.

Advantages of Consumer Loans

  • Easy approval – Consumer loans have a short approval process, giving you quick access to funding. These loans require only a few paperwork and documentation from applicants.
  • Collateral workaround  Some small consumer loans may be unsecured, allowing you to withdraw a loan without collateral.

Risks of Consumer Loans

  • Personal risk – Consumer loans will be tied to your personal finances, putting them on the line if you default.
  • Ability to borrow – Lenders will not approve your loan if your debt-to-income ratio is not good. This may cause a problem if you incur outstanding debt and need another loan later on.

Get That Funding

Business loans and consumer loans each have their advantages and drawbacks. In the end, there is no one-size-fits-all solution for your funding requirements. Instead, consider all the factors and research carefully to determine what loan type best fits your business needs. 

If you’re looking for companies offering business loans with fast approval and minimal requirements, look no further than JK Capital. JK Capital provides small business loans that you can use to finance your expansion, working capital, inventory purchases, and other business-related expenses. 

Contact us today to secure business funding in 7 days or less.