Know the Pitfalls: Choosing the Right SME Loans in the Philippines
Introduction
When it comes to getting a small business loan, there are a lot of things to consider. You need to make sure you are getting the best deal for your business, and that you are not going to get into any financial trouble down the road.
There are a lot of different types of SME loans available in the Philippines, and it can be difficult to know which one is right for you. Below are the three worst kinds of SME loans to avoid at all costs.
Are SME Loans the Best Option?
When it comes to financing your business, you have a few options: you can seek a personal loan, borrow from family and friends, or get a small business loan. Each of these options has its own set of pros and cons.
SME loans are best for businesses that have been operational for 1-3 years. They are offered by Landbank, RCBC, and AAIIB, and come with different interest rates and repayment terms.
Digital lending is critical for MSME financing. It is fast, convenient, and secure, and it allows businesses to get loans without having to go through the hassle of paperwork and red tape.
What Are the Worst Kind of SME Loans in the Philippines?
There are a few types of SME loans in the Philippines that you want to avoid at all costs. The first is the payday loan, which is a short-term loan with high interest rates and fees. The second is the credit card cash advance, which is also a short-term loan with high interest rates and fees.
Both of these loans are very expensive and can quickly trap you in a cycle of debt. If you need to borrow money during a crisis, it's best to do so through a bank or other financial institution.
What to Look Out for When Choosing an SME Loan Provider
When looking for an SME loan, it's important to keep in mind that not all providers are created equal.
One option is peer-to-peer lending, where businesses can borrow from other businesses or individuals. This can be a good option for businesses that lack collateral or a credit history.
However, it's important to note that not all peer-to-peer lending platforms are reputable, so it's important to do your research before choosing one.
Banks are another option for SME loans. They typically focus on the collateral offered, the purpose of the loan, and the creditworthiness of the borrower.
It's important to compare different banks to find the best deal for your business.
Pros and Cons of Traditional vs Online SME Loans
As you are researching the best SME loans in the Philippines, you will want to weigh the pros and cons of traditional vs online loans. For instance, online business loans can be accessed from any location, allowing you to start your venture right away. However, they also come with higher interest rates and fees than traditional bank loans.
On the other hand, factoring provides SMEs with working capital financing that does not require collateral or a fixed repayment schedule. Alternative debt financing is also provided by capital market investors, not banks, which means that approval rates are usually higher and terms more flexible. However, these types of SME loan are more expensive due to their high interest rates.
How to Protect Yourself From Problematic SME Loan Practices
To protect yourself from problematic SME loan practices, you should be aware of potential problems associated with a bad credit history. Poor credit scores can limit access to SME loans or require that you pay higher interest rates on the loans that you do get. To improve access to finance for SMEs, financial sectors should adopt measures like rapid pre-pack approvals and “fresh start”/debt discharge solutions. Additionally, movable assets like inventory and receivables should be used as collateral to increase access to SME loans.
Questions to Ask Before Signing a Contract for an SME Loan
Before signing any loan agreement, Small and Medium Enterprise (SME) owners should do their due diligence and ask at least fourteen questions about the loan. Some of these include: what fees are associated with the loan agreement? Are there any interest rates or other charges? What type of collateral does the lender require? How long will the loan take to process?
It is also important that both the lender and borrower sign a personal loan agreement, and that both parties agree to its terms. Common questions lenders ask small business owners include: what is your credit score? How much collateral do you have available to secure the loan? Do you have sufficient cash flow to pay back the loan on time? Asking these questions in advance can save SMEs from signing a potentially bad loan deal.
Conclusion
So, before you take out an SME loan, be sure to do your research and understand all the different types of loans available. Be aware of the interest rates and repayment terms, and make sure you can comfortably afford the monthly payments.
And most importantly, choose a reputable lender who will work with you to ensure that your business grows and thrives.
