Best Unsecured Loan Options For Startups in The Philippines
For many startups, securing funding can be one of the most daunting challenges they face. Without a track record or substantial assets, traditional financing options can seem out of reach. This is where unsecured loans become vital, providing a way for startups to acquire necessary capital without relying on collateral.
They offer flexibility and quick access to funds, which can be a lifeline for early-stage businesses looking to seize growth opportunities or manage unexpected expenses. In this blog, you’ll gain insights into understanding no collateral business loans, explore various types, learn about eligibility criteria, and get tips on comparing lenders.
Whether you’re seeking working capital or funds for expansion, knowing your options can make all the difference in your startup’s success.
Understanding Unsecured Loans For Startups in The Philippines
Unsecured loans offer a unique opportunity for startups by allowing them to borrow money without offering any assets as collateral. The lender primarily considers the creditworthiness and financial health of the business and its owner when granting an unsecured loan, forming a trust-based agreement with the borrower.
Importance of Unsecured Loans For Startups
For startups, unsecured loans are indispensable. They offer flexibility and accessibility, allowing a wider range of businesses to secure the funds they need without the constraint of collateral requirements. This accessibility allows startups to capitalize on opportunities and manage expenses quickly.
Another vital benefit is that unsecured loans help in preserving assets. Since there’s no need to pledge collateral, startups can safeguard their assets, preparing them for operational uses or future requirements.
Common Uses of Unsecured Loans in Startup Financing
Startups can use unsecured loans flexibly for various financing purposes. They’re commonly utilized as working capital to maintain smooth operations, finance business expansion initiatives, cover unforeseen expenses like repairs or equipment acquisitions, and fund marketing campaigns or product launches to enhance market visibility and growth.
Furthermore, these loans aid in cash flow management, particularly during seasonal changes, and help consolidate or pay off high-interest debt, thereby boosting a startup’s financial standing. Unsecured loans also encourage research, development, or innovative projects by providing means to pursue them without risking business assets.
Also Read: Dangers of Online Loan Apps in The Philippines
Eligibility Criteria for Unsecured Loans
Understanding these basic qualifications will enhance your chances of securing the necessary funds to grow your business.
Basic Qualifications Required
To start with, you must meet the basic qualifications where the applicant should be a Filipino citizen aged between 21 to 65 years.
The startup must also be legally registered with Philippine authorities like the Department of Trade and Industry (DTI) or the Securities and Exchange Commission (SEC), depending on its business structure.
Importance of Business Documentation
A solid foundation of business documentation is critical. You’ll need business registration certificates, permits, and licenses appropriate to your industry, such as health, zoning, or other specific licenses that establish your business’s legal standing and readiness to operate.
Additionally, having a well-structured business plan is invaluable. It should detail your business model, market analysis, financial projections, and a clear plan of how you will allocate the loan funds.
Common Financial Requirements
In financial terms, lenders usually look for a stable financial track record. This means providing up-to-date financial statements, including income and cash flow statements, along with bank statements covering the last 3 to 6 months. These documents help demonstrate your financial health and cash flow stability.
For more established businesses, at least two years of financial statements are usually expected, although some lenders may accommodate newer startups with at least 6 months to 1 year of operational history.
Your credit history is another significant factor. If your numbers are not optimal, adding a cosigner with a robust credit background can be beneficial. Furthermore, lenders might require proof of a certain level of revenue to ensure the business can handle loan repayments. Documentation, such as sales receipts and invoices, might be required to support this.
Lastly, the debt-to-income ratio is an important measure for potential lenders, who prefer it to be as low as possible to ensure that your business is not overstretched financially. Personal guarantees might be requested, especially in the case of unsecured loans, which means you may be personally liable for the repayment if the business falters.
However, some lenders offer options without requiring such guarantees, often designed for businesses that meet specific revenue or operational criteria.
Also Read: How Do Interest Rates Work in The Philippines, And What Are Their Types
Types of Unsecured Loans Available For Startups in The Philippines
When exploring unsecured loan options for startups, it’s crucial to understand the different types available, each with its own unique set of features and benefits.
Term Loans
Term loans are a common option for startups in the Philippines. These loans are typically smaller in amount compared to secured loans and come with stricter credit criteria, often resulting in higher interest rates.
Lenders like PBCom may offer these loans without requiring collateral, making them a viable option for startups that prefer predictable monthly payments over a fixed term. However, due to their unsecured nature, these loans tend to have more stringent approval processes.
Business Credit Cards
A more accessible option for many startups is business credit cards. Companies like Zed Philippines Inc. offer cards tailored for startups, with benefits such as no interest, no foreign transaction fees, and no annual charges, which can be especially appealing to entrepreneurs with limited credit histories.
The credit limits on these cards are determined based on projected income, making them more attainable for businesses with high-growth potential. However, it’s important to manage these responsibly to avoid high interest rates.
Line of Credit
This option provides the flexibility of accessing funds as needed, rather than receiving a lump sum upfront. A line of credit from providers like First Circle offers startups a revolving credit limit where interest is only paid on the amount used.
While credit amounts up to PHP 20 million can be available without collateral, larger amounts may require some form of security. It’s an ideal solution for bridging cash flow gaps, funding projects, or covering emergency expenses.
Invoice Financing
Though technically not an unsecured loan since invoices act as collateral, invoice financing offers a way to obtain quick cash by leveraging outstanding invoices. This method suits startups facing long payment cycles, as it converts unpaid invoices into immediate funds without needing traditional collateral like property or equipment.
Companies such as FundSpace allow startups to selectively finance certain invoices, giving them control over which expenses or projects to prioritize.
Also Read: Notarized Loan Agreement in the Philippines: A Sample Contract
Do you require funding to take your Philippine business to the next? Check out this video. It provides information about unsecured financing options for startups, including 0% credit programs and unsecured credit lines, which are ideal for startups looking for loans without requiring collateral.
Application Process For Unsecured Loans in The Philippines
Applying for an unsecured loan as a startup involves several straightforward steps, to ensure that you acquire the necessary funds to fuel your business quickly and efficiently.
The advent of fintech companies has streamlined this process significantly, making it easier for startups to access capital without the prolonged wait times often associated with traditional banks.
Step-by-step Application Process
To begin the application process, you must fill out a registration form which can usually be found on the lender’s website, their office, or through a convenient fast cash loan app.
This initial step requires basic personal and business information, and it’s crucial to ensure that all data is accurate to avoid delays.
Required Documents
Next, you’ll need to submit the required documents. While traditional banks demand comprehensive financial documentation such as tax returns and detailed business plans, fintech companies often accept photographed or scanned copies of the necessary documents.
At this stage, you’ll gather and provide evidence of your credit history, income stability, and business financials, which are critical metrics lenders use to evaluate your financial profile.
Timeframe For Approval
One of the standout benefits offered by fintech firms like First Circle is their rapid approval process. While traditional banks may take weeks or even months due to extensive documentation and manual processing, fintech companies can issue a loan offer within just two business days.
Upon submission of your application and documents, the lender will review your financial history and business viability. Companies offer varying approval times, with some processing as quickly as five minutes and others taking up to 24 hours.
Once they approve the loan, lenders provide details such as the amount, interest rate, repayment terms, and any additional information. Following approval, funds are typically disbursed within one to three days, enabling you to put the capital to work as soon as possible.
However, the overall timeframe can fluctuate depending on several factors, including the complexity of your application, the lender’s procedural efficiency, and the current volume of applications.
Also Read: Applying For a Citibank Personal Loan in The Philippines
Factors to Consider When Choosing a Loan
When considering an unsecured loan for your startup, several factors demand careful evaluation to ensure you get the best deal.
Interest Rates
Interest rates play a critical role in the overall cost of your loan. It’s essential to compare rates across multiple lenders as they can vary depending on the term and the lender’s criteria. For instance, UnionBank and Welcome Bank in the Philippines offer different rates based on the loan’s specifics.
Repayment Terms
Repayment terms are another crucial consideration. Startups often face irregular cash flows, making flexible repayment options highly beneficial.
Some lenders provide weekly or bi-weekly payment schedules, and others, like Maya Flexi Loans, allow for funds access only when necessary, thus better-managing cash flow.
Lender Credibility
The credibility of the lender can’t be overlooked. Ensure the lender is regulated by the Bangko Sentral ng Pilipinas (BSP) or other relevant authorities to guarantee the security and integrity of your dealings.
Moreover, customer reviews can offer additional insight into the lender’s reliability and service quality.
Loan Amount Flexibility
Another factor to weigh is the flexibility of the loan amount. Requirements can vary widely, from a few thousand pesos to millions, with lenders like Esquire Financing Inc. offering up to PHP 10 million.
Evaluate your current and potential future needs, and consider lenders offering scalable solutions, such as First Circle, which adapts loan amounts to your business’s evolving demands. Also, look out for hidden fees—processing, late payment, and early repayment fees might add significant costs.
Transparency is a good indicator of a lender’s trustworthiness. Choose lenders who disclose all terms and fees upfront. Online comparison tools can help analyze these factors comprehensively, ensuring the loan aligns with your startup’s financial situation.
Also Read: Getting a Car Collateral Loan in The Philippines
When seeking a startup loan, personal savings, home equity loans, credit cards, crowdfunding, and loans from friends and family are possible options. Check out this detailed Reddit thread to learn about these options in greater detail to select the best one to match your needs.
Unsecured Loans For Startups in The Philippines – Interest Rates And Repayment
Unsecured loans pose unique financial implications for startups, mainly regarding interest rates and repayment conditions.
Typical Range of Interest Rates For Unsecured Loans
Lenders set interest rates for unsecured loans based on factors like their policy and the borrower’s financial standing or credit profile. Typically, startups might encounter monthly interest rates ranging from 1.30% to 2.5%.
The Bangko Sentral ng Pilipinas has set the maximum interest rate limit at 6% per month for simpler loan types, aiming to protect borrowers from excessive charges. However, even with these regulatory protections, the cumulative annual interest — such as 30% derived from monthly rates of 2.5% — can burgeon the total loan repayment significantly.
Repayment Options And Schedules
Unsecured loans often come with a variety of repayment terms that appeal to startups seeking flexibility. Lenders typically offer loan durations ranging from short-term plans of 12 to 18 months to longer terms of up to 36 months, as seen in offerings like Security Bank’s SME Business Express Loan.
In addition to varied terms, payment schedules can also be tailored according to the startup’s cash flow circumstances, encompassing monthly, bi-monthly, or even one-off payment arrangements.
Impact of Interest Rates on Total Repayment
The burden of higher interest rates is magnified when repayment schedules are extended, potentially stretching the financial resources of a startup.
Late payments add another level of risk with penalties potentially reaching up to 5% per month on any overdue amounts, a stipulation enforced by regulations such as those from the Bangko Sentral ng Pilipinas.
Also Read: How to Get an LLC Small Business Loan in The Philippines
Comparing Lenders Offering Unsecured Loans To Startups in The Philippines
When it comes to getting the right unsecured loan for a startup, a very important step is looking at different lenders to find the best match. There are traditional banks, online lenders, and alternative financing options, each with its unique traits.
Traditional banks like UnionBank, BPI, and Metrobank are well-known for their long-standing reputations and variety of services. They offer loans such as term loans, credit lines, and franchising loans, usually at lower interest rates because they can access cheaper capital.
However, these banks tend to set strict eligibility criteria, require collateral, and take more time to process loans. Yet, the physical presence and wide range of services, including customer loyalty programs and extensive branch networks, can benefit businesses looking for a one-stop financial solution.
On the flip side, online lenders offer rapidity and efficiency, with loans approved within minutes to a few days. They use modern technology for credit checks, allowing them to cater to a broader spectrum of borrowers, even those who might not meet traditional banks’ requirements.
Platforms such as Tala, GCash GLoan, and Cashalo have user-friendly apps, and flexible loan terms, and do not have many geographical restrictions. Still, they often come with higher interest rates due to perceived higher risks and potential regulatory hurdles.
Choosing between these options largely depends on your startup’s priorities: the dependability and broad services of traditional banks or the speed and flexibility of online lenders.
For those needing quick access to funds with an easy application process, online lenders could be the answer. In contrast, startups with more time and capacity to meet rigorous criteria might gain from the benefits offered by traditional banks.
Lastly, assessing a lender’s reputation and customer service is vital. Reviewing customer feedback and ratings, provides valuable insights into their reliability and responsiveness, allowing you to make an informed decision that fits your startup’s specific needs.
Conclusion
A significant benefit is that these loans help build a startup’s credit history, paving the way for future financial prospects. Moreover, they preserve ownership stakes, letting entrepreneurs focus on growth instead of worrying about giving up equity.
While the potential of unsecured loans is clear, it is crucial for startups to thoroughly assess their requirements before applying. Understanding exactly what you need the funds for—be it to bolster working capital or to purchase new equipment—can align your loan use with strategic goals.
Evaluating your creditworthiness, making informed financial projections, and comparing lenders will help obtain favorable loan terms and strengthen your business strategy.
