Need money quick? Try banks Merceditas Alviar-Esguerra Philippine Daily Inquirer
February 22, 2009
IT HAS BEEN MONTHS since you collected from your last contract. Orders for your products or users of your services continue to come in, albeit not as frequent as before. You have to continue doing business. Yet your best efforts to raise money from idle equipment, overruns and receivables are not enough. Your suppliers have politely turned down your requests for credit. Money is indeed getting scarce.
Key pointers
What do you do? One of the best options is to get a bank loan. But a loan is not for everybody. So before you rush to the bank and take out a loan, here are some pointers to keep in mind:
1. Select a bank. Shop around. Study their loan packages. Choose a bank that knows you and understands your business well so it can match your needs with its products.
2. Understand the loan process; comply with the requirements. This presupposes that you did your homework: You have what it takes to be worthy of the loan; you know why you are borrowing; and you have earmarked where the loan proceeds will go.
Banks normally require several documents pertaining to the applicant, as well as to the business. Be sure to complete them before filing your application to avoid unnecessary delay.
These include a residence certificate, BIR-stamped tax declaration for a number of years, bank and trade references, and papers pertaining to collateral. Startups are also required to submit a mini business plan and business registration papers.
Lending criteria of banks and other lenders may vary as each bank sets its own conditions. Financial institutions usually set a lending limit per customer. However, all lending institutions in the country are governed by the general regulations of the Bangko Sentral ng Pilipinas.
3. Prepare to face the bank officer. You need to convince the officer that the business can pay off the loan. This requires you to know your business finances inside out. Try to find out from other businesses and from banker-friends about the factors that will improve your credit rating. Ensure that you can be flexible to repay the loan. Don’t promise the moon; negotiate for a grace period for your payment schedule but be sure that charges for delayed payments are reasonable.
It will help to remember the following for that first meeting with the loan officer:
Know something about the bank. Read the profile, products and services, banking experience, preferred customers.
Make an appointment. Give short and relevant information about your business and the purpose of the loan before the meeting.
Prepare for the meeting. This requires you to know the facts and figures of your business by heart. Be ready with a copy of your financials--balance sheet, income statement, budget, cash flow and business plan--if you are a startup.
Get some advice. Prepare to disclose important information about your business. This will allow the officer to better assess your application and give appropriate advice. Be ready too to ask about the most suitable loan package for your business, the appropriate security and the risks of various repayment methods.
Study your options well. Be wary about borrowing more than what you need, for a very long term, or at a very high interest. Banks as service also operate for profit. Ask about the costs, fees and charges that accompany the loan.
4. Be ready for inspection. There are other things to prepare for: The officer’s visit to your workplace to check how you are doing and an inspection of the collateral to appraise its value. Prepare as well for a credit investigation.
Four Cs
Borrowing from lending institutions can be a challenge. They require critical information about borrowers. If you are able to fulfill the following, then you are on your way to a successful negotiation.
Character. Being honest, with a good reputation and a strong inclination to honor obligations makes for a good character. This makes a borrower a good credit risk. An introductory letter from people who know you well and who are respected in the business community, an impressive brief resume and a good track record of previous loan payments can help.
More requirements
Capacity. Having a record of doing business with success speaks well of your ability to run a business efficiently and profitably. This should be supported with the standard financial reports (balance sheet, profit and loss statement and cash flow statement), budget for the year, previous loan agreements and details of booked orders.
Capital. A business that is highly leveraged is not a good credit risk. Your sworn statement of assets and liabilities should show a sizeable proportion of your ownership in the business.
Collateral or guarantees. Most lenders require a pledge in the form of a surety or guarantee that they can confiscate and sell off in case a borrower is unable to pay a loan. Among the most commonly accepted collateral include: Fixed assets, marketable stocks of raw materials or finished goods, receivables, guarantees from banks or other financial institutions, postdated checks and investments such as bonds, marketable securities, as well as shares of stock of companies listed in the stock exchange.
Of course, this is not to say that after complying with all the requirements, you will finally get that bank loan. There is still one factor to contend with--the business climate. This affects both the borrower and lender. When businesses are growing, profits are rising, and there are visible signs of gainful employment, banks get to be more liberal.
They presume that businesses are doing good and thus, are able to repay their financial obligations. On the other hand, financial institutions would rather hold on to their purses during times of economic uncertainty. The current economic situation that the whole world is going through has prompted lending institutions to become more conservative in granting loans.
(For updates on small enterprises and entrepreneurship development, contact the UP Institute for Small-Scale Industries at 9287076 -79 or e-mail infoissi@up.edu.ph.)
