A business loan is essential for small and medium enterprises (SMEs) for many reasons, from covering cash flow gaps to accelerating business growth.
For first-time borrowers, however, narrowing down their choices to just one or two loans can be difficult. There are plenty of company loans, SME loans, and corporate loans in the Philippines – and just as many financing sources. The good news, however, is that you can decide on a business loan type first before everything else. Knowing the type of business loan you need makes your search more systematic; as soon as you know your business loan type, you can simply Google "best term loan" or "best credit line".
Since no two businesses are alike, only you – as the business owner – can decide which type of business loan will suit you best. To help you decide, we've narrowed down the business loan types available in the Philippines below – and the loan factors you need to consider for each, such as your purpose, your financial capacity, and the urgency of your needs.
I. What are the basic business loan requirements in the Philippines?
II. What are the types of business loans in the Philippines?
1. Term Loan
2. Credit Line
3. Secured Loan
4. Unsecured Loan
5. Startup Loans (New Business Loan)
Most lending companies require the following business loan requirements. Learn what they are, their purpose in your application, and how to obtain them in our guide to common business loan requirements:
• A valid ID
• Loan application form
• A DTI, SEC, and/or BIR certificate of registration
• Business permit, or another official document showing your business address
• Audited financial statements and/or Income tax returns
• Other business documents such as Articles of Partnership or General Info Sheet
There are 5 types of business loans in the Philippines:
1. Term Loan
2. Credit Line
3. Secured Loan
4. Unsecured Loan
5. Startup Loans (New Business Loan)
A term loan is a long-term type of business loan that disburses a lump sum of cash upfront. It is best used for funding a large one-time purchase, investment, or cash flow gap. It is the most common business loan type in the Philippines. Most SME loans such as corporate loans, commercial loans, equipment loans and real estate loans are referring to a term loan unless stated otherwise.
Term loans are typically used by larger companies, often with collateral, for long-term investments such as: building new stores; purchasing another business or real estate; or paying off existing debt.
Medium-to-large established corporations with big investment projects
Depending on the amount borrowed, a term loan can be paid between 1 year or up to 25 years. In the Philippines, you can get up to ₱20 million of funding or more depending on the collateral provided. Repayments of the principal loan plus interest is often done monthly or quarterly.
For this type of business loan, you can apply from the bank or provider’s office, branch, or website.
Government financial institutions also offer the following:
A credit line, also known as line of credit, is a business loan type that provides access to a set amount or ‘credit limit’. You can dip into it whenever the business need arises, and you only pay interest on the portion you used.
Credit lines are best for short-term goals, project funding, cash flow gaps, or growth opportunities.
Since they are always available, this type of business loan also serve as a good emergency fund for unexpected business spending, such as equipment repair or increasing inventory for peak seasons. Every business can benefit from setting up a credit line free of charge, as you can never be sure when your business will be in need.
Small, medium and large businesses with established revenue, growth opportunities, and uncertain cash flow
Credit lines are available for up to ₱20 million, but amounts in that range often require collateral. First Circle’s non-collateral Revolving Credit Line, meanwhile, goes up to ₱5 million for new clients and ₱10 million for existing clients. Repayments can be monthly, quarterly, or as a one-time payment, depending on your loan term; however, the interest rate payment is often done monthly.
When your dues are paid, your credit limit is replenished and you can borrow again without the need to re-apply. Our Revolving Credit Line, for instance, is always valid as long as you keep your business documents up-to-date.
With First Circle, you can apply here in just one minute, and hear from us regarding your application within 3 business days. Application for other credit lines can be done at a bank branch or online.
A secured loan is a type of business loan that requires collateral. Collateral can be the borrower’s real estate, bank deposits, or other forms of valuable assets; they are seized by the lender if the borrower fails to repay the loan. In the Philippines, term loans and credit lines are often secured if you are borrowing amounts higher than ₱2 million.
Secured loans usually offer higher amounts and lower interest rates to borrowers, because the collateral required reduces risk for the lender.
Like term loans, secured loans are best for large one-time purchases or spending.
Medium-to-large established corporations with big investment projects and assets that can be used as collateral
A secured business loan can go from from ₱500,000 to ₱35 million. It is repaid monthly or quarterly. Generally, a longer repayment period has lower monthly payments but higher interest rates, while a shorter repayment period has a lower interest rate but larger monthly payments. You may also be asked to pay appraisal and collateral registration fees before becoming eligible for this corporate loan.
For this type of small business loan, application is often done in person at the bank or government office.
An unsecured loan is a type of business loan that does not require collateral. Because the risk is higher for lenders, they often have smaller loan amounts, higher interest rates, and shorter repayment terms. In the Philippines, you can find unsecured term loans and credit lines that go up to ₱2 million.
Depending on the amount, this loan can be used for both small recurring expenses or large one-time purchases. Credit lines also count as a form of unsecured loan, as lenders often do not require collateral to qualify.
Small, medium and large businesses with established revenue, growth opportunities, and uncertain cash flow
Unsecured loan terms can be from 3 months to 3 years. Most provide smaller sums from ₱500,000 to ₱5 million. Interest rates start as low as 1.39% per month, depending on the SME’s financial capacity and profitability.
You may apply for this business loan type at any lending company's offices, branch or website.
A startup loan is a financial grant to startup entrepreneurs and new business owners who need capital to execute a sound, profitable business idea. This type of business loan is usually competitive, and requires an excellent business plan or business pitch to obtain.
This loan is best for project funding of short-term or long-term business concepts, which require infrastructures, equipment or workers to build.
Entrepreneurs planning to start a business
Financial grants often come from the government, with amounts ranging from ₱5,000 to ₱5 million. The loan terms can be several months and up to 2 years, depending on the business purpose and the terms laid out by the institution providing the grant. The loan is repaid at interest rates lower than 10% or even at 0%, depending on the capability, profitability, and purpose of the business project.
To acquire this business loan type, borrowers must have a good reputation from previous lenders and “proof of concept”: often a profitable business model or idea, and good sales projections. These must be submitted at the lender’s office, branch, or website.
A company loan may be necessary to take your business further — but it can also be a risky, problematic move if you don’t do the necessary legwork. To make an informed decision, understanding the best business loan type for you is crucial, as well as making a realistic repayment plan to reduce your risks of defaulting. This is how you'll know the loan interest rate and monthly repayment amount you are comfortable with.
First Circle’s Revolving Credit Line is a type of business loan in the Philippines that funds your plans and cash flow gaps whenever you need it. Our credit line has the following advantages:
First Circle is a multi-awarded lending company supporting SMEs since 2016. To apply for a Revolving Credit Line, click here.
