Which type of loan best fits your business financing needs? Consider these seven important factors first.
1. Your Purpose for Borrowing Money
What do you need the money for? Is it for a short-term need like buying inventory and supplies to meet seasonal demand? Or you’re looking to fund a long-term investment like building your shop?
The types of business loan in the Philippines cater to a specific purpose, be it short-term, long-term, or both. Be clear about your goals from the get-go.
2. Loan Amount
Next, determine how much you need to borrow for your business. Loanable amounts vary according to the type of loan and the lender. For example, secured business loans typically have higher loan amounts than unsecured loans. The higher the value of your collateral, the better your chances of qualifying for a higher loan amount. Also, most banks lend higher amounts to entrepreneurs than government agencies and private lenders in the Philippines.
3. Method of Funding
How do you prefer to access your funds? Do you want to receive the loan proceeds as a one-time lump-sum amount? Or you’d rather access the money only when you need it? Business loan types largely differ in the way the loan proceeds are released to the borrower.
4. Loan Term
How long can you realistically pay the business loan? Can you pay it off within a year? Or you need a longer time to complete your loan repayments?
5. Repayment Mode
What mode of loan payment will work better for you: fixed or flexible monthly payments? The right choice depends on the cash flow of your business.
Do you have a valuable asset you’re willing to put up as collateral for a secured business loan? If so, the amount you can borrow will depend on the appraised value of your collateral.
7. Interest Rate
Of course, you want to get the best business loan at the lowest rate possible. But it can be quite tricky because interest rates vary according to the lender’s prevailing rate, loan term, and type of loan. For instance, lenders charge higher interest rates on unsecured business loans than secured loans.
After you’ve considered all these factors, take a look at each type of business loan. As an entrepreneur launching a startup in the Philippines, you have four choices: term loans vs. credit lines and secured vs. unsecured loans. Let this guide help you find the best business loan for you.