We’ve seen how big businesses bled during the pandemic while micro and small enterprises sprouted like mushrooms everywhere.
When the cold season of lockdowns ended, and people started to get out of their dungeons, these start-ups struggled to stay afloat, and many took down their signboards and shut down operations quite too soon.
Starting a business is hard, and keeping it going is even harder. The aquascaping supplies online shop that I started during the pandemic peak is still in operation, although less active and profitable than before.
But we have also seen even more reasons and motivations to pull our business interests and attempts back to the surface in the post-pandemic economy. The rapid and unstoppable growth of digital infrastructures and business solutions must push experienced entrepreneurs to expand operations and wannabe entrepreneurs to turn creative and innovative ideas into profitable businesses.
Many surviving micro and small enterprises, particularly those online or on social media, remain part of the informal business sector, that is, without legal registrations and documents. Their operations are mostly financed by the entrepreneurs themselves from their own pockets or, possibly, loans and capital contributions from family members.
As soon as business upscales go imperative, entrepreneurs are left with no choice but to go for these legalities, which can be taxing because of the complicated business registration processes that require not only dedicated time and effort but also financial resources for the fees and taxes. But, all businesses, big and small, must really be registered to avoid legal problems.
There are lots of benefits to securing business documents apart from legalities. You also secure your reputation as a business owner while building trust among your suppliers, clients, and employees. On top of these, you can get loans from banks and other formal business financing institutions. Remember that adequate funding is the lifeblood of a growing business.
Micro, Small, and Medium Enterprises (MSMEs)
In the Philippines, micro, small, and medium-sized enterprises (MSMEs) are technically defined as businesses engaged in industry, agri-business, and services that have an asset size (less land) of up to PHP100M and an employment size with less than 200 employees regardless of the type of business ownership, i.e., single proprietorship, cooperative, partnership, or corporation.
As the government supports them, MSMEs contribute to the overall development of the national economy by reducing poverty by creating jobs, stimulating economic growth in rural and far-flung areas, and serving as valuable partners to large enterprises as suppliers and providers of support services. They also serve as breeding grounds for new entrepreneurs and large corporations.
Thus, a vibrant MSME sector is an indicator of a thriving and growing economy.
The 2021 List of Establishments (LE) of the Philippine Statistics Authority (PSA) recorded 1,080,810 business enterprises operating in the country. Of these, 1,076,279 (99.58%) are MSMEs, and 4,531 (0.42%) are large enterprises.
Micro enterprises constitute 90.54% (978,612) of total establishments, followed by small enterprises at 8.63% (93,230) and medium enterprises at 0.41% (4,437).
The top five industry sectors, which accounted for about 87.40% of the total number of MSME establishments, were:
- wholesale and retail trade, repair of motor vehicles and motorcycles
- accommodation and food service activities
- other service activities, and
- financial and insurance activities
Common Business Loan Requirements (for MSMEs) in the Philippines
In this article, I’ll identify the most common business loan requirements (for MSMEs) in the Philippines and provide a brief guide for a BDO SME Loan application.
As First Circle emphasizes, these documents, which you need to prepare and present, prove three things — the legality of your business and its operations, the current status of your personal and business finances, and the capacity of your business to repay the loan.
Additionally, these requirements vary across business financing institutions, in which banks may require more of them and impose more stringent evaluation practices.
On the other hand, online lenders, which emerge from the ground up to maximize speed and convenience, may sometimes require fewer documents and offer higher chances of loan approvals.
Still, it is you, as a business owner, who can make an informed decision about which lenders offer the best loan programs that suit your business financing needs and preferences.
Basic Application Forms and Identification Requirements
These are the most basic and initial documents that banks and business financing institutions require to get to know you as an applicant. These should provide them with your identity as a borrower and the business you run, thus satisfying the lenders’ KYC (Know Your Client) protocol.
- Business Loan Application Forms. If you’re trying to apply online, these may also be accomplished online or downloaded from their official website. If done onsite, these may be requested at the service branch of the bank or lending institution.
- Valid Government-Issued IDs. Depending on the lender’s policy, you may be required one or more of these IDs. Commonly accepted valid government-issued IDs include passports, UMIDs, driver’s licenses, postal IDs, and PRC IDs.
- Marriage Contract (if applicable). This is also commonly required for a married applicant. It’s given that wedded couples typically have conjugal properties and so share liabilities.
Business Registration and Other Legal Documents
It is almost impossible to get a business loan from banks and formal lending institutions without having the business registered with government agencies, which generally include the local government units, Department of Trade and Industry (DTI), Bureau of Internal Revenue (BIR), and Securities and Exchange Commission (SEC).
To easily understand, these business registrations and other legal documents are grouped based on business types — general (regardless of business type), sole proprietorship, partnership, and corporation.
General Requirements. These include general business registration and other legal documents, regardless of the business type.
- Mayor’s Permit. It allows you the privilege to conduct your business within the jurisdiction of the municipality or city, and it is obtained from the Business Permit and Licensing Office (BPLO) by filling out an application form and submitting various business requirements.
- Business Tax Identification Number (TIN). Businesses in the Philippines need registration with the Bureau of Internal Revenue (BIR) for legal operations and remittance of taxes. After registering your business, the agency will provide you with a Certificate of Registration, Books of Account, and Authority to Print from BIR.
- Company Profile. Some lenders also require a company profile for formal identification if the business operates as a sole proprietorship or partnership. If it is a corporation, there is what we call a General Information Sheet (GIS), a document about its basic information as signed and attested to by the corporate secretary and filed with the Securities and Exchange Commission (SEC).
- Proof of Billing. Any documentary proof, such as utility bills (electricity, water, internet, etc.), invoices, and receipts that matches the business name, owner, and address, can be used for this purpose.
- Business Location Map. Although you may provide a sketch for this, it is way better to add your business to Google Maps and print out a screenshot that includes the actual coordinates where it is located.
- Photos of Business Premises or Inventories. These may not always be required, but in case, you may include in the photos the facade of your business establishment, your inventories or supplies, and you, as the business owner, in the foreground.
Sole Proprietorship. Also referred to as a single proprietorship, it is the most simple form of business and the easiest to register through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI).
It is owned by an individual who has full control and authority of its own and owns all the assets, and personally answers all liabilities or losses.
- DTI Certificate of Registration. Suppose your business runs as a sole proprietorship. In that case, you must obtain registration from the Department of Trade and Industry (DTI) and legal rights to use a business name for five years and renew it for validity. You may still register in person at any DTI office or online in a few minutes.
Partnership. It is defined by the Philippine Civil Code Article 1767 as a contract between two or more persons that agree to contribute money, property, or industry to a shared fund to split the profits among themselves. It is also a separate legal entity from that of the members in the partnership.
- SEC Certificate of Registration. Partnership businesses must secure registration with the Securities and Exchange Commission (SEC) by filing the Articles of Partnership.
- Articles of Partnership. It is a notarized and SEC-filed document wherein the persons or business associates enter into an agreement or contract of partnership. SEC has a downloadable template for this.
Corporation. It is defined by R.A. 11232 or The Revised Corporation Code of the Philippines as an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence.
- SEC Certificate of Registration. Like a partnership, a corporation must be registered with the Securities and Exchange Commission (SEC) to legitimize the juridical unit and permit it to legally participate in the business, issue receipts, trade with financial assets, and be entitled to rights under the nation’s corporate and investment laws.
- Articles of Incorporation and By-Laws. The Articles of Incorporation states the name, purpose, place of office, incorporators, capital stock, and company term upon its establishment. On the other hand, the by-laws outline the rules on annual and special meetings, voting, quorum, notice of meeting, and auditors and inspectors of election.
- Latest General Information Sheet (GIS). It provides a snapshot of the company’s current status, including the names and addresses of its stockholders as signed and attested to by the corporate secretary and filed with the Securities and Exchange Commission (SEC).
- Secretary’s Certificate (Additional). It is a notarized document prepared by the corporate secretary that enumerates the actions and resolutions approved by the corporation’s board of directors.
- Elected Officers or Board Resolution (Additional). If GIS is not yet available, lenders may request these documents stating the corporation’s appointed Board of Directors and Officers. Some banks and business financing institutions may also provide templates for these.
Business Income and Profitability Documents
These requirements provide the lenders with a projection of the profitability of your business in the short and long terms and your financial capability of paying back loans based on your credit history and cash flow.
- Personal and Company Bank Statements. You may request these from your bank for specific fees. Usually, lenders require bank statements from the last three to six months.
- Latest Income Tax Return (ITR). It is a document stating your annual income and taxes paid to the government and filed annually with BIR. Your accounting team can provide this. However, if you do this independently, you can download BIR’s ITR forms for each company type. Some lenders also require ITRs from the past two or three years.
- Business Annual Revenue. Annual revenue is the total amount of money your company earns from business operations in a year before any deductions for returns, the cost of goods you sold, and expenses. The revenue requirement varies per lender, but most require profitability in the form of annual revenues.
- Audited Financial Statements (AFS). These are the financial statements of your business that have been examined and audited by a Certified Public Accountant (CPA) and required by BIR from companies earning PHP3 million and above per year.
- List of Top Customers, Clients, and Trading Relationships. Some loans for SMEs require the Latest Summary Alphalist of Withholding Tax at Source (SAWT) or the Latest Summary Lists of Sales and Purchases. Both are proof of trading relationships that can be obtained from the BIR.
- Unpaid Invoices or Purchase Orders. These are proofs of ongoing business operations or upcoming projects.
- Official Receipts. There are issued to the buyers as written evidence on the sale of services or leasing of properties and acknowledgment of the cash payment collection on services rendered.
In secured business loans, collateral or security documents include any documents granting a security interest in collateral by the borrower, parent, or subsidiary in favor of the lender and all other documents required to be executed or delivered according to those documents.
- Transfer of Certificate Title (TCT) or Condominium Certificate Title (CCT). TCT and CCT contain all the information about the property, including the owners’ names, the date of purchase, and a property description. They are thus used to transfer property ownership from one person to another.
- Certificate of Tax Declaration on Land and/or Improvement. This is used to declare the value of the possessed land and all other improvements for real property tax purposes. CTDs are issued by the local assessor’s office in your city or municipality.
- Building and/or Floor Plans of Proposed Improvement. If the purpose of your business loan is for construction, you may also be required building and floor plans, bills of materials, and specifications of proposed finishes.
Other Post-Approval Documents
After having been approved for a business loan based on your submitted copies of requirements, you may still be required to submit some post-approval documents, which may include:
- original owner’s copy of TCT/CCT
- original and updated tax clearance
- certificate of no improvement (if vacant lot)
- fire insurance policy on improvement
- real estate tax receipts (RETRs)
- and others necessary
In conclusion, these business loan requirements are stringent and demand great work for compliance, especially for most business owners like you who might have just started navigating the world of business. Still, these serve one big purpose, and that is to determine if you are capable of paying back the loan.
BDO SME Loan
BDO SME Loan is a business loan offered by the Philippines’ largest universal bank, BDO Unibank, Inc., that provides financing to small and medium enterprises (SMEs) for various business purposes. It comes in term loan and SME Ready Check programs.
- Term Loan provides funding for long-term business investments. It works best for the purchase of new assets such as machines and equipment, acquisition of real estate properties, and construction, repair, and renovation of business facilities. While it is a secured loan, you can borrow from PHP1M to PHP20M or up to 70% of your property’s value, payable in up to 10 years.
- SME Ready Check, on the other hand, is a revolving credit line that gives access to funds whenever your business needs it. You can use it to buy inventory or supplies, as a working capital to address operational requirements and pay suppliers while waiting for customer collection. You can also use up to 70% of your collateral property’s value or borrow PHP3M up to PHP20M. It comes with one-year validity and an option for renewal.
Here are other frequently asked questions about BDO SME Loan:
- How much can I loan from BDO SME Loan programs? You can borrow up to 70% of the value of your real estate properties. For instance, you can loan up to PHP5.6M for a house and lot with an appraised value of PHP8M. The appraised value may be determined during property appraisal upon loan application.
- What are accepted as loan collaterals? BDO SME Loan accepts houses and lots, commercial properties, vacant lots, condominium units, townhouses, and mixed-use properties as collaterals for the business loan.
- How do I apply, and what are the requirements? To qualify, you must be at least 21 years old but not exceeding 70 years old at the end of the loan term, a business owner (sole proprietorship, partnership, corporation) with a business in profitable operation for at least two consecutive years, and have a minimum annual gross sales of PHP1M. Your business must also be within a BDO serviceable area. Prepare your documentary requirements and submit them online via their official website or through BDO Loans Centers and BDO service branches.
- How fast will it take to get my BDO SME Loan approved? You will receive a loan decision within ten banking days if you have submitted your application form along with your identification, income, and property or collateral documents.
- How much is the loan interest rate? Currently, the interest rate for a one-year fixing period is 7%. After this period, the interest rate will be repriced annually.
- What are the loan-related fees that I need to prepare for? If the collateral offered is within a 30-kilometer radius of any BDO branch, the appraisal fee per title is PHP5,000, and PHP5,500 if outside the radius. You need to pay PHP5,000 for the handling fee. Other minimal fees include those for notarization, collateral registration, documentary stamp tax, and for credit, fire, and CARI insurance premiums. For SME Ready Check, a processing fee based on the percentage of approved credit line shall also be paid.
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