How to Fund Your Small Business: SME Loans to Consider

Passion, grit, and patience are essential for entrepreneurs, but these aren’t enough to start a business. Of course, you need the skill to find financing to set your venture in motion.

Many small- and medium-sized enterprises (SMEs) tend to put together funding from various sources— for example, from friends and family. However, it’s easier to get funds from a single source, such as from a loan. This is where small business loans come in. It is a practical form of financing, especially since various loan types and financier options are available.

Of course, it’s essential to carefully research each loan type available to weigh your options and select the right one for your business and growth goals.

Where to Get a Business Loan

Read on to find out how to fund your small business fittingly by exploring the various loan types and where to get a business loan in the Philippines.

Government

As the name implies, government agencies provide this financing solution. The two primary agencies in the Philippines providing small business loans are the Small Business Corporation (SB Corp) and the Department of Trade and Industry (DTI).

To be eligible for this loan, you should be an active member of the government body you wish to avail of the loan from. This means you must be a registered and regular contributor. Contributing regularly also boosts your odds of getting approved for the application.

Pros:

• Active members have good odds of getting approved for the loan application.
• Payments are easy; they’re directly deducted from your salary every month.

Cons:

• The application can be a lengthy process with a government agency.
• While you can get interest- and collateral-free government loans, you will still be charged a service fee.

Bank

Many banks offer lending programs to support entrepreneurs, making them one of the primary business funding sources. Getting a bank loan entails paying interest to repay the bank for the loan. Philippine banks generally provide short- or long-term repayment terms, depending on your needs.

Pros:

• Banks offer easy application and flexible payment terms and repayment plans.
• You can utilize the loan as a step to unlock other financial privileges with the bank.

Cons:

• Banks often have strict requirements and a lengthy application process.
• Banks look into your credit line and credit standing.
• They may require collateral for the amount borrowed.

Private

Private lenders can refer to individual investors or companies with investors that offer personal or business loans. Qualified firms can be preapproved based on a range of criteria. This funding option can benefit companies that wish to expand for higher profits.

Private financing institutions like JK Capital provide easy business loans in the Philippines to support the growth of local enterprises and boost the economy.

Pros:

• Simpler requirements and application process.
• Faster approval and turnaround time to receive the borrowed money.

Cons:

• The loan may come with higher interest rates.
• Some private lenders require a co-guarantor to be liable for the loan in case of missed payments.

Types of Business Loans in the Philippines

Now that you know where to get a business loan in the Philippines, it’s time to discuss the types of loan you can apply for. Most of these loans are offered by banks and private lenders, whereas government agencies typically provide traditional term loans.

Now that you know where to get a business loan in the Philippines, it’s time to discuss the types of loan you can apply for. Most of these loans are offered by banks and private lenders, whereas government agencies typically provide traditional term loans. 

1. Term Loans

Terms loans are offered in a lump sum and paid in monthly installments over a specified period. The monthly payment comes with a fixed interest rate for the loan span, making it easy to plan for. 

Traditional banks offer term loans, which can come with or without collateral. This loan type is ideal for financing the renovation or expansion of an existing business and additional funding for capital or acquiring equipment for growing production. 

2. Short-Term Loans

This type of loan is for businesses that need financial support short-term gaps, such as to finance business expenses for continued operations. Short-term loans are typically offered online and are payable in a year, depending on the lender. The process for short-term loans is fast and simple, but the interest rates run high.

3. Lines of Credit

Traditional banks offer lines of credit that allow entrepreneurs access to money whenever they need it, especially during urgent situations, so long as the money is within their credit limit. A line of credit works similarly with a credit card, where it replenishes when the balance is fully paid. 

Business owners who need a stable source of cash for tight financial situations can benefit most from this type of loan. But much like with term loans, banks are meticulous when approving lines of credit. 

4. Invoice Financing

Based on the name, this loan is only an option for businesses that invoice clients since lenders use your accounts receivables as security. This type of financing works by sending your invoice to a potential lender to advance cash in case of future invoice payments. It’s a reliable solution for short-term cash flow issues for small businesses. 

5. Merchant Cash Advance

For business owners who can’t meet the qualification requirements for other types of loans, merchant cash advance companies offer this commercial loan as a viable option. You receive a cash advance from the lender and pay it back from your business’s daily credit card sales. It’s a flexible payment solution with a short-term loan amount but comes with high fees and interest rates. 

6. Equipment Loans

Equipment loans are a financing option used for purchasing or leasing machinery or other equipment, such as a printing machine, restaurant equipment, or vehicle, essential for your business to operate and grow. The equipment you purchase can act as collateral for the loan, which means the lender can repossess it if you default on the loan. 

Get Your Business Off the Ground

Taking out a small business loan is a serious financial decision. With the many loan types and different institutions to get them from, it’s crucial to consider your options carefully before making the final call. A suitable financing solution can certainly help you meet your business goals. 

Don’t be afraid to get the financial support you need. Back your business up with the right financing option from the right financial partner. Apply for a business loan today with JK Capital, and let’s get your business running!