Steer Clear of These 5 Bad Types of Loans for a Small Business Startup in the Philippines

Introduction

When you're starting a small business in the Philippines, it's important to be aware of the different types of loans available to you. Not all loans are created equal, and some can be far more harmful than helpful.

Below are 5 of the worst types of loans for small business startup in the Philippines. Avoid them at all cost, if you can.

1. Unsecured personal loans

2. Lines of credit from friends or family

3. Credit cards

4. Car title loans

5. Payday loans

What’s a Bad Loan for a Filipino Small Business Startup?

There are many types of loans available for small businesses in the Philippines. However, not all of them are good options. Here are five bad loans to avoid:

1. Unsecured personal loans. These loans offer lower loan amounts and typically have higher interest rates.

2. Secured loans. These loans are secured by the assets of the business, which means that the lender has more protection in case of default. They typically have lower interest rates.

3. Business loans. These loans are designed for businesses with bad credit ratings. They offer a variety of terms and conditions, and can be a good option for businesses that don’t qualify for traditional loans.

4. Overdrafts. An overdraft allows you to borrow more money than you have in your account, up to a certain limit. This can be a risky option, as you can end up paying high interest rates and fees if you don’t pay back the loan quickly.

5. Credit cards. Credit cards are a popular form of borrowing, but they should be used with caution. The interest rates on credit cards can be very high, and if you don’t repay the balance quickly, you can end up paying a lot of money in interest and fees.

Payday Loans

There are a few types of bad loans you want to avoid when starting a small business in the Philippines.

For one, payday loans are incredibly expensive and can quickly send you into debt. Second, unsecured business lines of credit, merchant cash advances, and business credit cards are all great alternatives to payday loans, but they can be difficult to get if you don't have a good credit score.

Finally, venture capitalists are always looking for new businesses to invest in, but the downside is that they can be quite demanding and often require a lot of equity in return for their investment.

Title Loans

When you're starting a small business, it's important to be smart about how you borrow money. Here are 5 types of loans to steer clear of:

Title loans are short-term loans in which the borrower pledges their car title as collateral. The interest rates are high, and the loans are often difficult to repay.

SBA 7(a) loans are available to small businesses that are starting up or expanding. The loans can be up to $25,000, and they come with low interest rates and flexible repayment terms.

SBFC Loan Guarantee Program helps businesses create and retain jobs by providing funding for small businesses that might not otherwise qualify for a loan. The program offers guarantees of up to 85% of the loan amount, making it easier for businesses to get the financing they need.

Real estate collateral is often used to secure loans, especially for businesses that are expanding or have been in operation for a few years. This type of loan can be a good option, as long as you have enough equity in your property and the interest rates are reasonable.

If you're looking for a business loan, be sure to compare all your options before deciding on a lender. Don't fall into the trap of taking out a bad loan that will only end up hurting your business.

Credit Card Cash Advances

Credit card cash advances are similar to Unsecured Business Lines of Credit and Merchant Cash Advances, but they do not require any collateral. Banks often require a personal guarantee and a good credit line to qualify for the loan application. Merchant Cash Advances provide lump-sum financing for businesses with consistent cash flow, but they have higher interest rates than traditional loans. With credit card cash advances, businesses can get quick access to immediate funds, but they should be used cautiously. If you're considering this option, it's important to understand that these advances come with high interest rates and must be paid back quickly.

Home Equity Loans

Home Equity Loans can be used to start a business, but they present some risks that should be taken into consideration. They can put the borrower's home at risk and the interest rates are often higher than other types of loans. Additionally, the repayment period is often shorter, meaning that the payments must be made quickly. While these loans can provide funds for a small business startup in the Philippines, there are more secure alternatives.

Vehicle Equity Loans

Vehicle Equity Loans may seem like a good idea, but they are not recommended for small business startups in the Philippines. When you pledge a vehicle as collateral, the loan will be based on the value of the vehicle minus any outstanding debt. Plus, you could lose your car or other asset if you fail to meet repayment obligations.

There are alternative financing options to straight debt that may be more suitable for a startup in the Philippines, such as asset-based finance, microloans and loan guarantees. Lenders may assess business loan applications and require collateral such as cash, property, stocks or vehicles. In conclusion, Vehicle Equity Loans are not recommended for small business startups in the Philippines and other alternatives should be considered first.

Conclusion

So, if you're starting a business in the Philippines, be sure to steer clear of these five bad types of loans:

1. Unsecured loans – These are loans that are not backed by any form of collateral. They are very risky for the lender and often come with high interest rates.

2. High-interest loans – Loans that come with high interest rates are always a bad idea, regardless of the industry.

3. Loan sharks – Unscrupulous lenders who charge exorbitant interest rates and often use threats and intimidation to get their money.

4. Predatory loans – Loans that are designed to take advantage of people who are not familiar with the loan industry or are in a vulnerable financial position.

5. Balloon payments – loans that require the borrower to pay back the entire principal amount plus interest in a single payment at the end of the loan term.