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Lesson 6 BANK AND NONBANK LOAN REQUIREMENTS

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28 views6 pages

Lesson 6 BANK AND NONBANK LOAN REQUIREMENTS

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arisgwapa91
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SAN PEDRO NATIONAL HIGH SCHOOL

San Pedro, San Jose, Antique

BUSINESS FINANCE
Lesson 6. BANK AND NONBANK LOAN REQUIREMENTS
Learning Competency:
Compare and contrast the loan requirements of the different banks and nonbank
institutions and cite these institutions in the locality (ABM_BF12- IIIe-f-14)
Objectives:

At the end of the lessons, you should be able to:


1. identify the bank and nonbank institutions in the vicinity that are possible
sources of funds, and enumerate their requirements and process for loan
application;
2. Enumerate the loan requirement of the different banks and nonbank
institutions; and
3. Recognize the loan requirements of the different banks and nonbank
institutions;

Banks are financial institutions that accept deposits from or offer loans to an individual
or entity. Here are some examples of banks from the website of Bangko Sentral ng
Pilipinas (www.bsp.gov.ph);

a. Banco De Oro (BDO),


b. Bank of the Philippine Islands (BPI),
c. Land Bank of the Philippines (LBP), to name a few

Nonbanking institution, on the other hand, offers bank-like services but cannot
accept deposits due to absence of banking license. Examples of nonbanking institutions
are insurance companies, currency exchange, microloan organizations and pawnshops
(The World Bank Group 2020).
Insurance companies offer transfer of risk transactions. In the event of uncertain loss
of the business, insurance may cover the loss for them. Government-owned insurance
providers are GSIS and SSS, and private insurance providers like Sun Life, Metrobank
AXA, BPI PhilAm Life are listed in the Insurance Commission (Insurance Commission
2018).
Currency exchange is an industry of buying and selling currencies. Examples of
financial institutions listed in BSP Money Service Business are Western Union, Cebuana
Lhuillier, Mlhuillier, Villarica Pawnshop and many other local forex businesses (BSP-
List of Money Sevice Business 2020).

Microloan organizations are lending companies or organizations that usually offer


small credits to individual or business. These organizations help small businesses to
fund their short-term finances with less requirements. Examples of microloan
organizations (also called microfinancing) are the local cooperatives and lending or semi-
lending companies like Home Credit, GCash, Paymaya and the like. These companies
are found in the List of BSP Supervised Electronic Money Issuers (Bangko Sentral ng
Pilipinas 2020).
Pawnshops are institutions that offer quick cash loans or “sanla”. The process is too
simple that a pawner offers a collateral in the form of jewelry (gold, silver, diamond and
other precious metals or stones) to loan money. Examples of these pawnshops listed in
the BSP (List of BSP-Supervised Pawnshops 2020) are Cebuana Lhuillier, Mlhuillier,
Palawan Express and Villarica Pawnshop.

In the Philippines, the regulatory agency governing the conducts of financial


institutions, whether bank or nonbank, is the Bangko Sentral ng Pilipinas (BSP). BSP
regulates these financial institutions by providing policy directions in the general use of
money, banking, and credit (BSP Overview of Functions and Operations 2015). Thus,
bank protocols, especially on information gathering of a client’s personal and financial
information, is ruled by BSP abiding the rules of Anti Money Laundering Act (AMLA).
The following examples were cited for education purposes only.

Loan Requirements of Banks and Nonbanking Institutions


At some point, a business may consider finding an outsource of funds to finance its
operations. Depending on the amount needed, business relies on financial institutions
whether banks or nonbanks, and this amount of credits may require certain
requirements that can range from financial statements, legal/personal documents,
or/and property collaterals.

Business loans can be used in different purposes and whether these funds are used
for short-term or long-term. The loan can be payable in longer terms, example, up to
30 years. The range of credit offered to a client can be as much amount but will
depend on the collateral he/she submitted. In banks, collaterals are in the form of real
properties like land or house and lot. The business may have to submit the land title
as a requirement. The purpose of the loan should be clear because bank
requirements may differ from one purpose to another. Example of these purposes are
for franchising, purchase of new equipment, expansion, or construction and for
establishing a new business. They may even require business registrations, depending
on the type of business: single proprietor, partnership, or corporation. Banks assess
more loan requirements because they are more concerned with the business’ capacity
and ability to pay. Collective term for these loan purposes is Business Loan or Small-
Medium Enterprise (SME) Loan.
On the other hand, nonbanking institutions also provide loans but unlike banks, they
have lighter loan requirements. They may offer flexible amounts to be loaned with
minimum to no collateral acceptance. Under a microloan, for example, a business may
apply for a loan and be approved onsite without the need to disclose the purpose of
taking the loan. However, they have higher interest rates compared to banks. They
also have shorter payable period. The worst can happen that when a business fails,
one can be indebted under such big interest.
Whether loans are applied in banks or nonbanks, a business’ financial structure and
planning should always be monitored. Take loan amounts that are only necessary for
a project and assess the impact of amortization payment to the business. There are
certain banks which also offer up to P5M without collateral under certain conditions
and subject for approval. These banking and nonbanking institutions have different
mechanisms on how to attract potential clients. Thus, background checking is a
business’ preventive tool to minimize the risk of falling into deep interest payment.
Financial analysis, financial ratios and budget preparations are some tools that can
help business utilize its funds wisely.

Below are the loan requirements of banks and nonbanking institutions.


Loan Requirements of Banks
a. Application form – is the details gathered in this form refers to your personal
data, income sources and credibility.
b. Valid personal identification documents – are supporting documents that
backup the data presented in the application form. IDs are classified as primary and
secondary, depending on the bank’s list of IDs. Primary IDs usually are government-
issued, photo bearing ID.
c. Financial statements – is usually presented to support credibility of the entity
applying for a loan. The purpose of the loan and/or attractive financial leverage can
help ease the application process.
d. Bank statements – are client record of bank transactions which is used to see the
liquidity of cash flow of the business.
e. Certificate of business registration – refers to the overall legality of the business
organization and its operations. Registration may come from Bureau of Internal
Revenue (BIR), Mayor’s Permit, Department of Trade and Industry (DTI), Securities
and Exchange Commission (SEC), to name a few.
f. Company profile – may be presented in business proposal form indicating the
profile of the business, purpose of the loan, amount to be loaned and/or the return
projections.
g. Collateral documents - include land title, tax declaration, vicinity map, and
special power of attorney (if applicable).

Loan Requirements of Nonbanking Institutions


a. Application form – refers to your personal data, income sources and credibility.

b. Valid personal identification documents – are IDs required in nonbanking


institutions which are classified into primary and secondary which usually require
more identification requirements in loans of big amounts.

c. Credit information/collateral file – are documents offered by the client


submitted to and held by a Custodian.
d. Credit investigation – may be required to determine the credit standing of the
applicant and the fair market value of the collateral being offered.

As seen in the flow chart, a borrower will accomplish an application form which
contains personal and business details. Upon submission, the creditor will conduct an
interview for a background check to an applicant regarding his/her credibility,
capacity, and ability to pay. The creditor will request additional requirement, if
applicable. If requirements are met and the application is of good will, the creditor will
approve the loan or will be declined if otherwise.

Activity 1.
Directions: Compare and contrast loan application in bank and nonbanking
institutions by using the Venn Diagram below. List at least 3 functions that they may
be similar or different.

Activity 2.

This is a sample application form for business loan in Filipino Bank.


Directions: Fill out the form with the following details.
a. Assume any type of business of your choice, create its name, address, mobile
number, and email address.
b. You are a one-year existing client of Filipino Bank since January 1, 2023, with
payroll account 523-54897 and an outstanding balance of Php 150,000.00.

c. It is a family business, a single proprietor, and 3 years in operation. You have 5


employees.
d. Tax Identification Number of the business is 404-143-877-001.

e. The past year’s net income is Php 300,000.00.


f. It is your first time to apply for a loan. The amount you plan to loan is Php
500,000.00 payable for 36 months and the purpose is to remodel your store.

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