As a business owner, one of the most critical decisions you can make is securing a loan when your finances are in the red. This decision can make or break your business, which is why choosing the right financial institution is crucial. In this article, we will compare bank loans and online lending companies to help you make an informed decision.
Types of Small Business Loans in the Philippines
According to Sean Martin D. Plantado, head of Digido Customer Care, banks are the most common source of loans for small businesses in the Philippines. However, there are also other sources of credit that we will discuss in this article.
Before taking out a loan, it is essential to consider the loan amount you need. Banks in the Philippines offer a minimum loan amount of Php1 million and a maximum of Php15-20 million. In contrast, online lending companies offer a maximum of about Php10 million, with some not having a specific minimum loan amount. For instance, First Circle bases its loan amount on the borrower’s needs. However, other lending companies offer a minimum amount of Php50,000 to Php100,000.
Loan Duration and Payment Scheme
Bank loans are ideal for long-term loans that take over a year to repay, while online lending companies are better suited for short-term loans with a repayment duration of 2 weeks to 1 year. Banks offer short-to-medium-term loans that can take 1-3 years to repay. Some banks also offer a repayment scheme that allows borrowers to pay both interest and principal monthly. On the other hand, online lending companies offer loans with biweekly or monthly repayment schemes.
Online lending companies offer more flexibility in loan repayment and do not charge fees for early repayment or loan termination. Banks, however, charge a fee for early repayment, making online lending companies a better option for short-term loans.
The bank loan application process is often tedious and lengthy, requiring a visit to the nearest branch, filling out an application form, providing all required documents for review, and waiting for approval, which can take 2-3 months. In contrast, online lending companies offer a faster application process that can be completed online without leaving your home or office. Approval for online loans usually takes between 3-7 working days.
Business and Documentary Requirements
Banks require that a business has been in operation for a minimum of 2-3 years and has a track record of 1 year of profitable operations before qualifying for a loan. Online lending companies, on the other hand, require that a company has been in operation for a minimum of 1 year.
Interest Rates and Fees
Banks charge lower interest rates and fees than online lending companies. Banks charge between 0.50% to 1.5% as interest per month and around 0.75% for processing fees. In contrast, online lending companies charge about 1.99% for processing fees. However, before deciding, it is essential to ask the bank Relationship Manager about the interest rates, as most online lending companies publish their interest rates and fees on their website.
In conclusion, when deciding whether to take a loan from a bank or an online lending company in the Philippines, consider the loan amount, duration, payment scheme, application process, business and documentary requirements, and interest rates and fees. By doing so, you can make the best loan decision for your business.