A lending firm in the Philippines offers loans with cash or money contributed by no more than 19 people. Pawnshops, insurance firms, cooperatives, and other credit organizations with a Certificate of Authority that offer other financial goods and loan activities that are now controlled by law are examples. It is also known as a lending investor or a financing business.
What is a Lending Company?
A lending company, or a financing company, is a business or an institution that lends money to firms and individuals with the expectation that the total loan amount will be repaid. The lender earns interest when the person borrows money from them, which is charged at a fixed percentage of the loan amount. The financing company provides a credit that can be used for various purposes, such as financing working capital, student loans, or business loans for business capital. Business owners can also borrow credit to provide a backup line of credit when irregular cash flows.
Types of Lending Companies
In the Philippines, financing institutions are classified into two: traditional and alternative financing companies.
Traditional financing company
Credit unions and other financial institutions that make loans to small and medium-sized businesses are commonly referred to as traditional financial institutions. They typically offer the best terms of all commercial lending options and are used to compare other alternative lending platforms. On the other hand, individuals and businesses seeking loans from traditional lending institutions must fulfill the financial institutions' stringent borrowing conditions.
This exclusivity has allowed traditional grantors to be selective about who they lend to, which means that traditional bank loans have relatively high application requirements for applicants. A conventional financing company might accommodate one or more of these requirements. Still, you'll need robust and well-established collateral for traditional financing.
Types of traditional financing companies
Banks
Bank loans can be used for various reasons, including financial emergencies, large expenditures, and credit history improvement. The approval of bank loans is often determined by your overall financial profile, including your credit score. They have a low annual percentage rate, flexible repayment terms, minimal fees, and a streamlined, easy-to-apply process with helpful and accessible customer service agents.
Banks offer almost all types of loans, including but not limited to mortgages, personal loans, payday loans, auto loans, student loans, salary loans, home equity loans, fixed-rate loans, secured personal loans, etc.
Credit unions
A credit union is a member-owned nonprofit financial cooperative, similar to a commercial, providing its members with similar financial services, including deposit accounts, credit, and other financial services.
Credit unions mobilize members' savings and lend them funds; it has become an increasingly popular way of getting loans in the Philippines. However, their present resources may not be enough to satisfy the growing credit demands of their members. Credit unions that face this challenge try to resolve it by requiring their members to line up for credit and rationing credit. This could mean increased opportunity costs for those who want a certain amount of honor. However, access to additional external funding sources could alleviate this resource constraint.
Credit union loans have a low-interest rate and fee, which helps lower the overall cost of borrowing. A credit union can also make it easier to obtain loan approval. You may want to look into small credit unions as those institutions are more likely to take a personal approach to evaluate your loan than a uniform, rigid process for every application. A credit union can help you with the same types of loans as a bank, such as mortgages, autos, home equity, personal, and business loans.
Pawnbrokers
A pawnbroker is an individual or company (pawnshop) that offers people secured loans with personal property used as collateral. The items that have been pawned to the broker are called pledges, pawns, or simply collateral. Jewelry, video game systems, musical instruments, home audio equipment, computers, coins, gold, silver, televisions, cameras, power tools, firearms, and other relatively valuable items are all common collateral pawnbrokers offer.
If items are pawned for a loan (also known as "hocked" or "popped"), the pawner may redeem them for the amount of the loan plus some agreed-upon amount for interest within a specified period. The length of time and the interest rate are determined by law and state commerce department policies. They hold the same license as a bank, which is highly regulated. If the loan is not repaid within the timeframe (or extended if applicable), the pawnbroker will offer the pawned item for sale to other customers.
A pawnbroker does not record the defaulted loan on a customer's credit report because it has physical possession of the item and can recover the loan amount by selling it outright. Some pawnshops are ready to trade items in their shop for items bought from their customers.
The pros and cons of a traditional financing company
Pros
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It offers low-interest rate. A conventional finance firm often offers the lowest cost rates compared to any other lender.
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It is flexible. When you get a loan from a conventional lender, you will not have any restrictions on how you can spend the money. You can borrow from a traditional lender for cash to buy new equipment, renovate your home, or implement a new marketing strategy.
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It allows you to maintain control. A conventional lender does not require you to give up any equity to obtain a loan.
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Interest is deductible from tax. Conventional loans' interest is tax-deductible. In addition, loan servicing payments stay the same for the loan duration, particularly with fixed-rate loans, where the interest rate is fixed for the loan period. People can easily budget for payments as a result of this. Even if the loan has an adjustable rate, applicants might use a spreadsheet to estimate future costs if the rate increases or decreases.
Cons
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It has complicated loan application process. They sometimes get loans from a traditional financing company if your finances are not in order.
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The process with a conventional financing company can be slow. Most of the time, it takes several months to qualify for and obtain a loan from a bank. Compared to other financing options, loans from traditional grantors are one of the most difficult to obtain.
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It requires collateral. Regardless of profitability, monthly income, or how good your credit score is, traditional granters will need some form of collateral. These granters must protect themselves if they can't make monthly payments.
Alternative financing company
Alternative finance businesses benefit from looser federal restrictions and are not subject to the exact disclosure requirements of standard grantees. Online grantmakers, peer-to-peer grantmakers, and crowdsourcing are examples of alternative companies. They often give short-term credit and may not require applicants to pledge security. Nevertheless, alternative grantors may require applicants to produce more documentation than traditional grantors for significant loans. Documents required include business and personal financial statements, credit reports, business plans, certificates of employment, etc. The interest rate on a loan is determined by whether it is secured or unsecured. Unsecured loans often carry higher interest rates than standard unsecured loans because of their greater risk of loss.
Types of alternative financing companies
New technology platforms, alternative grantors, and online markets all share the objective of making loans more accessible. These technological advancements have resulted in a growth in online lending as a source of funds for borrowers. There are several types of lending companies you may encounter in the Philippines.
Direct lending
Direct lending provides bank-style loans in the absence of a bank. Since some traditional banks no longer give personal loans, a lucrative business has emerged for alternative grantors that offer direct loans in the same way that banks do, but without the surrounding bank framework.
Direct granters generate funds from investors to finance leveraged loans to applicants. Clients may include small and medium-sized businesses, entrepreneurs, and other investors. These are the customers that banks have shied away from in recent years. Therefore, direct lending may be argued to meet substantial market demand. It provides significant growth possibilities for investors and businesses that they would not have otherwise.
Merchant cash advances
Borrowers of minor loans may be able to use merchant cash advances (MCA) as a simple alternative. People who need short-term financial assistance or have been denied a traditional bank loan owing to insufficient funds or low credit ratings may be eligible. Cash advance loans, on the other hand, might be pricey. Before considering applying for one, make sure you do your homework.
Peer-to-peer lending (P2P)
Individuals can lend or borrow money from one another without utilizing a bank due to peer-to-peer (P2P) lending.
Peer-to-peer (P2P) lending eliminates the need for a middleman financial institution by allowing applicants to get loans directly from other borrowers. Because of the websites that enable it, peer-to-peer lending has grown in popularity as an alternative to traditional finance.
Private lenders
A private lender utilizes their cash to finance ventures such as real estate and earns money by charging interest on loans. Private lenders are independent of any bank or financial organization and deal directly with the borrower.
Private lenders provide considerable value to investors since they typically have different approval standards and a shorter processing time than traditional financing institutions. The criteria and interest rates may vary based on the scenario, but dealing with private lenders is comparable to working with other types of loans.
Quick online personal loan lenders
Potential customers can apply for online personal loans, also known as installment loans, on their website without visiting a nearby branch. Online loans, like traditional personal loans, can be utilized for various purposes, including debt consolidation, medical expenses, travel and relocation, weddings, and emergency needs.
An online personal loan provides cheap interest rates, a variety of loan sizes, inexpensive fees, and flexible repayment alternatives. Top grantmakers also have simple application and underwriting procedures, minimal eligibility conditions, and rapid funding schedules.
The pros and cons of an alternative financing company
Pros
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It offers simpler qualification process. Non-bank granters have access to different data than banks do when determining creditworthiness. Some believe this procedure is more straightforward, fairer, and equitable.
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It provides more funding options. It is a known fact that large banks tend to ignore loans they deem to be too small. They put in the same effort to fund smaller loans but don't earn as much as they do from larger loans, which explains why. The best non-bank granters offer funding choices specifically designed for small personal loan granters.
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It offers quicker approvals. You don't need a long, drawn-out approval process to get a personal loan from an alternative financing company. As an entrepreneur, you must get going as soon as possible, so choosing an alternative lender is the real deal.
Cons
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It is more expensive. Small, inexperienced borrowers who use alternative lending for short periods pose a higher risk. Because of this, non-bank granters may impose higher interest rates or shorter terms, resulting in hefty payments that may negatively impact your cash flow.
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It offers smaller loan amounts. By providing smaller loan amounts, alternative lending platforms reduce their risk. Most loans are between ₱1,000 and ₱2,000,000, with an average loan size of ₱50,000 in 2021. However, loan amounts may be higher if you have strong credit.
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It offers shorter term. Granters reduce risk by cutting the time between payments. Because of this, applicants for small personal loans might only have access to money for a limited time, which could affect their cash flow once the loan is paid off. If you have a significant credit score, you may be able to negotiate longer terms with lower payments.
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It requires more frequent payments. While monthly payments are customary for standard bank loans, some alternative lending options call for daily or weekly repayments.
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It may be out of business. Because you are new, there is a chance that the lender you work with will fail. How will having a business loan affect the way your company operates? Consider a non-bank lender in the same manner as any other firm before deciding to trust and do business with them. Check to determine if they have been in business for at least a few years. Check to see if they have enough funding and support to help you with your application. Reading client testimonials is another excellent way to acquire a sense of an alternative lender. Trustpilot, ConsumerReports, and Google Reviews are all excellent sources of information.
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It has early payment charges. Ask about any fines or penalties for late payments. You may want to pay off your loan early but don't want to be penalized for doing so.
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It has hidden charges. Borrowers should examine the tiny print on small businesses or personal loans. Excellent customer service is required to receive accurate replies to all inquiries. Specific alternative grantors may add disbursement fees, origination fees, repayment expenses, and other charges. Working with your bookkeeper or accountant to determine the proper loan amount and cost for your specific business is recommended.
How to find a lending company
It is highly recommended that you spend time investigating the many granters on the market before deciding on the best one. Each lender has additional loan and interest terms, and only by researching can one choose the best approach. Since most granters focus on specific types of loans, start your research by looking for recommendations from relatives, friends, advisers, mentors, and colleagues who have borrowed money in the past.
Pick at least two different financial companies and compare them to find the most beneficial one. Banks and credit unions are the best places to start when borrowing a loan. These financial institutions are great choices if you want to take out a business loan, a home equity loan, a personal loan, or a car loan. Bank customers or credit union members should contact the credit department to discuss the loan request.
Factors to consider when finding a lending company
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Credibility. Choosing a loan provider in the Philippines is one of the most crucial factors. You should select a lender who can guide you through the application process and has many years of lending experience. Some reputable grantors are transparent and forthright regarding the terms of their loans. They also provide evaluations and recommendations to bolster their credibility and industry knowledge.
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Interest rate and other charges. Rates may be a complicated factor when considering loan offers. While a reduced interest rate may be appealing, ensure that it is not only a ruse to attract applications when the loan cost is higher. Do not sign an offer unless you thoroughly understand the loan details. Take your time calculating the loan's cost. A competent lending firm should provide you with all the information you need to make an informed decision as soon as possible. If you feel that more charges have been concealed, request an explanation. Good grantors provide simple interest rates explicitly indicated in the offer letter. The best aspect is that there are no additional fees or hidden expenses. The only price you pay on your loan is the interest rate.
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Repayment terms and flexibility. This includes the time of repayment, the amount, and the terms of liquidation. These particulars must be highlighted in the loan offer. At this point, it is essential to understand that, while a financing company may not change its terms and conditions of service, your capacity to pay should assist you in picking the best repayment terms. It would be beneficial if you also evaluated the cost of early payments (liquidation). Unfortunately, some grantors charge penalties for early loan payback.
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Customer care. Any financial connection requires support. Unresponsive customer support is the last thing you need during an inquiry or application. Imagine waiting hours for assistance if you have concerns and require clarification, especially if time is of the essence. It's aggravating. A loan application might take a long time to process, so you should discuss it with the lender. You should search elsewhere if the funds are unavailable during your specified time frame.
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Confidentiality. This is another critical consideration when choosing a financial firm in Metro Manila or the Philippines. What were their reactions to the information you presented to them? How are defaulters handled there? Some creditors are well-known for threatening individuals in your close circle by informing them about your obligations. Is this what you're looking for? To guide the general public, reputable granters follow the Bangko Sentral Ng Pilipinas' Customer Data Privacy and Disclosure Statement and treat your request and data with the utmost confidentiality. When they default, they only employ lawful choices provided by the law.
What are the cheapest ways to get a loan?
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Credit cards. Credit card balances can be used to buy anything and eventually pay it off, paying no interest if you find a financing firm that offers a 0% interest rate (or a shallow one). Remember that these are typically introductory prices only available for a limited period. Consequently, pay the outstanding balance in full within the specified time limit, which is generally 18 months. If you need money immediately, be sure the deal offers cash advances.
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Home equity loans/lines of credit. With these, you pledge your home as collateral; depending on the value of your home, you can borrow up to a certain amount. A line of credit, like a credit card, allows you to borrow money up to a particular limit, whereas a home equity loan allows you to borrow a fixed amount of money at a fixed rate. Interest taxes are deductible.
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Personal loans. Personal loans are good in many cases, especially if you have a decent credit score (700 or above). They are available via credit unions and banks.
Conclusion
Before applying for a company loan, personal loan, consumer loan, salary loan, small business loan, employee loan, or any other offline or online lending product, whether you live in Metro Manila, Makati City, or any other city, you must conduct extensive research on the sort of loan you desire. Which finance provider would be ideal for that specific loan? There are competitive prices and terms available in the market. Some financing firms have the following characteristics: a certificate of authorization; adjustable monthly payment periods; multiple payment alternatives; the ability to transmit money directly to the borrower's bank account; the capacity to treat potential clients confidentially; and so on. Working with these awardees could be a brilliant place to start.
