[Updated March 20th 2017]
The economy of the Philippines is thriving. Traditionally the economy has been propped up by people who have left the country to find employment in the US and Middle East who regularly send money home to support their families.
In fact, there is estimated to be over 10 million Filipino overseas workers who contribute around $25 billion to the Philippine economy, nearly 9% of the Nation’s GDP.
Now, as the economy improves, there are more opportunities locally, and fewer young people opt to work abroad.
While many find employment at home, there is also a large body of budding young entrepreneurs who are determined to create new businesses.
Also, many overseas workers are returning home to do the same and exploit the skills that they learned working abroad.
This growing number of businesses, which include micro, small and medium enterprises, is contributing enormously to the growing economy.
Like all new and young enterprises, these entrepreneurs need finance for seed funding and growing their businesses. While some are able to finance their projects through personal savings and family investment, many need to borrow the money.
To encourage these activities, the government has initiated several schemes through which new and existing businesses can take out loans.
These include many micro-financing loan schemes aimed at people who wish to start micro-businesses such as market stalls, rug making, and agricultural enterprises. There is also a wide range of schemes aimed at small to medium sized businesses.
Although these governments backed schemes are playing an important role, many of them require adequate collateral to secure the loans; this might be available to established businesses, but for many start-ups it is too high a hurdle.
Small business loans, both secured and unsecured, are also available through the Philippine banks and other specialist financial institutions for the right businesses, though it is more difficult and expensive for businesses that don’t have a good trading history.
Online micro-financing and peer-to-peer lending sites are also providing enterprising Filipinos with readily available borrowing facilities. Here we look in more detail at these various schemes.
Government backed small business microfinance loans
A wide range of government backed microfinance loan schemes are available, some general and some highly specialist.
These are just a few examples; a comprehensive list and details is available in the Philippines government publication Financing Programs for Micro, Small and Medium Enterprises.
This scheme provides microloans to entrepreneurial workers for financing small businesses such as rug and basket making, services such as hair dressing and market vending, and small agricultural businesses.
Minimum loans are P6,000 for the first loan, increasing to a maximum of P150,000. Interest rates are variable and the loans are unsecured.
This program is available for businesses that have been operating for at least a year. Eligible businesses include many micro-enterprises capable of generating additional income immediately.
Up to seven loan cycles are available with a maximum loan amount of P 50,000 and is unsecured. Interest rate is 3% per month.
LDPO provides micro-loans to overseas Filipino workers who wish to start a new or finance an existing business.
Depending on the purpose of the loan, the terms are from two to five years with a maximum loan of P200,000 and interest rates of up to 9%. The loans must be secured against acceptable collateral.
Small Business Corporation Loans
The Small Business Corporation (SBC) is a Philippine government organisation specializing in providing funding for micro, small and medium enterprises (MSMEs).
It includes over 70 affiliated lenders and currently it is providing direct loans to the total value of P3 billion. It offers a range of direct loans including:
- Fixed Asset Financing – aimed at financing business expansion by acquisition of plant and equipment, vehicles, and building construction
- Working Capital – a credit line lending facility that includes:
- Demand Loan – a pre-bankable credit line
- Soft Investment Loan – a long term loan aimed at financing intangible investments such as marketing and R&D
- Micro Working Capital – for new businesses
- MSME IT loans – aimed at IT providers that work to develop IT facilities in MSMEs
- Start-up financing – for entrepreneurs with a proven prototype along with new franchisees
To qualify for SBC loans, the business must be at least 60% Filipino owned with assets of between P500,000 and P100 million and with at least one-year successful trading. Loans of between P200,000 and P15 million are available. Interest rates are from 10.1% to 18.0%.
Social Security System Loans
A range of Social Security System (SSS) business loans are available for small businesses. These include:
- Business Development Loans – these are available for new and existing businesses that are at least 60% Filipino owned. To qualify, existing businesses must be able to demonstrate a successful trading history and viable business plan. The loan must be secured against assets and the term is between 3 and 15 years.
- Social Development Loan – available for new and existing private education and health care providers
- Access of Small Enterprises to Sound Lending Opportunities (ASENSO) – designed to make loans more available to SMEs by providing standard simplified procedures. Short term loans of up to one year and long term loans of up to five years are available. The loans must be secured against assets.
Small Business Bank Loans
Several banks provide small business loans for small business initiatives. Typically, they will lend up to 80% of the total cost of specified projects with terms ranging from one to five years; interest rates are from 9% to 13%.
These are secured loans, though some organisations claim that a lack of adequate collateral won’t be a reason for declining a loan application as long as all available business and personal collateral is mortgaged even if the mortgage falls short of the full value of the loan.
Peer-to-peer lending is an alternative model for small business loans in the Philippines. There is one native peer-to-peer platform, a platform offering microloans, and bitcoin lending platforms such Bitbond.
Kiva is a not-for-profit organisation that provides peer-to-peer micro-loans to entrepreneurs in developing countries with the overall objective of alleviating poverty. Such loans are available to individuals in the Philippines who are inspired to start a business.
Simplex is the only currency based peer-to-peer lending platform offering small business loans in the Philippines.
The business is based in the Philippines and was launched in 2013. Loans of between P15,000 to P150,000 ae available to businesses that have been in business for at least one year with terms of between 6 to 9 months at an interest rate of 2% to 3% a month. Higher loans and lower rates of interest are available to businesses that are older than three years.
Bitbond, the bitcoin lending platform, also provides small business loans in the Philippines and offers several advantages. Anyone with an internet connection is able to apply for a loan even if they don’t have a bank account.
An additional benefit is the very low fees compared with high remittance fees charged by banks, which can be up to 8% of the transaction while Bitbond fees are as low as 1%.
The Government of the Philippines has recognised that making small business loans available to micro, small and medium sized enterprises is crucial to growing the economy, and has made substantial inroads into ensuring that such facilities are readily available.
Over the last fifteen years the economy has grown substantially. While some micro-loans are unsecured, larger loans are generally provided only when there is acceptable collateral and a proven trading history. Similar policies exist with the banks and other financial institutions.
Again peer-to-peer lending offers an alternative model. While micro-loans are available through Kiva, small business loans are available through Simplex, the only local peer-to-peer platform in the Philippines, though these are available only to established businesses and are short term.
Bitbond provides an alternative solution with accessible loans and a low fee structure.