You might be wondering how to set up a lending business in the Philippines; with the possible high return with this business is easy to see why. You may already know aware that many Filipinos apply for a loan every single year. Therefore, there is most definitely a great market for this service in the Philippines.
Applying for a loan in the Philippines can often be a hassle due to the strict background checks and documents. Therefore, breaking your business down into a niche for a specific type of person may benefit your potential customers and your business process.
Today We Will Explore: How To Set Up A Lending Business In The Philippines – Tips For Lending Businesses In The Philippines – If Starting A Lending Company In The Philippines Is A Good Idea – Common Questions When Starting A Lending Company
How To Set Up A Lending Business In The Philippines
Build Your Lending Business Plan
Executive summary: You indicate here the nature of your business, the mission statement, and the company information. Writing your background experience and skills and how they can contribute to the success of your leading business in the Philippines will also be a great idea.
Company description: Explanation of the business, your market, and the needs your lending business in the Philippines provides. E.g., Helping to provide small loans to an underserved community through online means.
Corporate name: There is a requirement in the Philippines for the corporate and trade name. It should describe the main activity of your lending business. As a business owner, you cannot use words that are attributed to established financing companies.
Capital requirement: 1 million pesos is the minimum capital to set up a money lending business in the Philippines. The SEC might require a higher minimum capital if authorized. If you plan to set up an extension, a branch, or a satellite office, there is an additional capital requirement for setting up any of these. Within Metro Manila and other first-class cities: P300,000 – Second class or other cities: P150,000 – Municipalities: P75,000
Market analysis: This is the part where you explain the size and characteristics of your target market. You can also determine possible competitors and note their strengths and weaknesses in this market.
Product Line: Define the kinds of loans you wish to offer. You can think of the advantages of your loans from your possible competitors in your market analysis. When looking at how to Set Up A Lending Business In The Philippines, the product line is critical.
Marketing And Sales: This will be your overall sales strategy to set up a lending business in the Philippines. For instance, you may want to cater to a broader community. You could also plan to add more loan types to your target market. But, how will you gain awareness about your service, and how will you build leads? These are all covered in your marketing and sales strategy.
Financial Projections: This section can project your incomes and outgoings for the next 12,36,60 months, etc. This will allow you to highlight any cash flow issues and see if the business will be profitable.
The Registration And Legal Requirements To open a Lending Business In The Philippines
Starting a lending business in the Philippines is a form of a corporation. Therefore, the business will need to be registered with the SEC. In addition, as mentioned, you need a minimum of one million pesos for the paid-up capital.
Businesses will also need to go to the local barangay hall, the city hall, SSS, BIR, Philhealth, and HMDF to complete the registration.
The legal requirements a business needs to comply with is the following;
- The Republic Act No. 9474 / “Lending Company Regulation Act of 2007”
- The Republic Act of 2007 / The “Implementing Rules and Regulations of Lending Company Regulation Act of 2007.”
Your business will also need to disclose (through writing) your business charges, interest, and loan-related matters. Hiring a lawyer can be very beneficial when looking at how to set up a lending business in the Philippines. Lawyers can do the needed research in your area and assist you in completing the required documents.
Choose Your Location For The Lending Business
Studying your target market is essential to deciding where to put up your lending business in the Philippines. You can determine the marketing, renovation, and other expenses needed.
Unless you plan to do your lending business online, your business will need a physical office. Therefore, it is best to choose a location that has the least competition but the best opportunities. For example, setting up a lending business in the Philippines at a home location may save money from overhead costs, but this is only applicable for online loan businesses in the Philippines.
You could also establish your office near business parks or near where your target market is located (Malls, Stores, Etc).
If you plan to rent, it’s a good idea to keep in mind that it is one of your most significant expenses. Therefore, you need to budget appropriately and not overspend. In many cases, you could negotiate a lease of 1 to 2 years with a renewal option.
If you are unsure whether your business will succeed, you should not sign a long-term lease.
Lastly, you can try to negotiate for some additional clauses. These are exclusivity clauses that prevent your landlord from renting the exact space to a direct competitor, etc.
Open A Business Bank For Your New Lending Company In The Philippines
To operate a lending business in the Philippines, it is recommended to open a dedicated business account to protect your assets.
If not, your assets (such as your car) could be at risk if you were to get sued. This is known as the piercing of the corporate veil in business law. In short, It means that the business and the owner are treated as one. An advantage of a business bank account is it makes filing of taxes and accounting easier.
For a business credit card, it separates your personal and business expenses. It is easy to track down the expenses of your lending business. The credit history is also built. This will help raise money and investment in the future.
To be the best, you need to hire the best
If you are starting your lending business in the Philippines, you could initially hire 2-3 people (But there is no limit). They are your collector, bookkeeper, and a loan application processor.
When you choose your bookkeeper and loan processor, they should be meticulous. This is because you might not recover your profit if your loan processor makes one mistake. A perfectionist bookkeeper can prevent problems with regulatory agencies. Your collector needs to be firm and patient when dealing with your clients.
Your employees should be able to help you have a transparent accounting and internal security system so that you can track your borrowers’ accounts and the movement of income and outgoings.
When opening a loan business in the Philippines, always finish with a checklist
At this stage, everything is complete. All that needs to be done is the final checklist. When starting a loan business in the Philippines, it is essential to double-check a few critical parts in the business during the final checklist, such as;
Loans offered and interest rates: These are the loans you can offer your customers. Example P5,000 to P15,000 with 3% to 5% interest each month. It’s a good idea to check that this attracts enough borrowers and your potential customer during the market research stage (Step 1).
It is also a good idea to double-check any new opportunities. For example, If you want to cater to OFWs or businesses, you can offer a more significant amount that can start at around P50,000. On top of the interest rate, you can ask for a 5% payment for the service fee to cover operation costs.
Terms Of Payment: This stage is where you can double-check your terms of payment. You can give a timeline of 3 to 6 months to complete the loan payment, for instance. It is always essential to have an expert or an account to run over payment terms before launching your business.
Credit Assessment & Collateral: This is the part to confirm and check your process for screening borrowers. To survive in the money lending business in the Philippines, you must know who to avoid and identify them. You can start with the 4 Cs: Character, Capacity, Capital, and Collateral. However, collateral is not usually a must for loans with a low amount.
You could ask the borrower to submit documents such as a COE or payslip and sign a promissory note with a co-guarantor. For loans P50,000 and up, you could ask for collateral corresponding to the loan amount or post-dated checks, which is another standard method.
If the borrower cannot provide collateral, you could ask them to give an authorization letter or an extraordinary power of attorney. In the case of collections, you have to abide by the law to avoid legal complications. Thus, it is advised to seek a lawyer’s advice on this business. If ever you encounter a problem with the collection, you could go to the small claims court. This was created for loans with principal not exceeding P100,000.
Penalties: The final checklist is to double-check all fees and penalties and how they will be processed. For borrowers who do not pay on time, you as a business owner could charge a penalty. This must be advised and shown at all times to your customers.
So now that we have gone through some essential steps in starting a lending business in the Philippines, are there any tips for new business owners? Yes!
Additional Law With Lending
A lending company may grant loans in such amounts and reasonable interest rates and charges as may be agreed upon between the lending company and the debtor: Provided, That the agreement shall be in compliance with the provisions of R.A. No. 3765 (Truth in Lending Act) and R.A. No. 7394 (Consumer Act of the Philippines); Provided, further, That the Monetary Board, in consultation with the SEC and the industry, may prescribe such interest rate as may be warranted by prevailing economic and social conditions. (Sec. 7, R.A. No. 9474) – sec.gov.ph
What does a lending company do?
A lending company in the Philippines is a corporation that grants loans with interest to individuals or small businesses. It offers a simple, accessible, and fast way for individuals or small businesses to have working capital. Generally, lending companies make their money from interest.
Tips On Opening a lending business in the Philippines
Tip 1: Choose A Location Near Your Target Market
This is a precautionary measure, but it can help in terms of safety and accessibility for your customers. You could also have your office near a bank or secure building to reduce the likelihood of robbery.
Tip 2: Small To Big Loans.
You may have spent a lot establishing your lending business in the Philippines. So it is essential to build profit as quickly and as effectively as you can. However, profit is frequently made through volume. (Unless you are making a high return of investment per customer). Therefore, start small and build your client base. This may be the best option for you. However, as with volume, there are some added risks to your business with this approach.
Tip 3: Work With The Key Personnel
You can build a client base by working with the HR and accounting departments of companies. For instance, offering an incentive of 1% from the loan interest you will charge can motivate this personnel to refer you to their employees.
Tip 4: Minimizing Financial Risks
You could interview your borrowers and ask them for the total amount they can pay at the end of the payment term. You could also ask about their salary and how they plan to comply with the given arrangements. Before agreeing to give out a loan, it’s an excellent idea to make sure you have a backup plan if the borrower does not comply.
Tip 5: Market Your Lending Business
Knowing the needs and pain points for the customer in your target market is always a great place to start with any business in the Philippines. Next, you can build awareness and turn traffic into leads. For instance, if your target market is small families in a rural area, you first need to find out how they learn about financial opportunities… Maybe they come to visit Filipino Wealth 😉
You could do physical marketing, such as handing out flyers; however, in many cases, the return of investment and investment on time is low compared to online methods. The biggest tip for me is that the Philippines runs on word of mouth! You can have a website that explains your lending business in the Philippines and how the loan processing goes, but nothing is as good as peer-to-peer recommendations.
Tip 6: Repeat Business
Being a fair lender is the best method to bring in more customers and keep them coming back. Always try to work things out with your borrowers as much as possible. Furthermore, your brand/business must keep its word all the time. Prioritize providing quality customer service and always show professional behavior.
Tip 7: Value The Importance Of Coaching, Mentoring, And Consulting
Yourself and coworkers are the most valuable assets. Therefore, coaching about success and leadership is essential to succeed in starting up a loan business in the Philippines. Reading books and articles, attending seminars, and watching videos are all great tools. You could also participate/watch conferences and talks.
Starting A Loan Business In The Philippines
Is Starting A Lending Business In The Philippines Right For Me?
If you understand the power of responsible money lending, this business is excellent for you. Although you are not going to run a charity, you can assist people when they need it. A successful lender can get the right balance of helping other people and remaining financially sound.
What Is A Typical Day Like At A Lending Office In The Philippines?
- Screening clients
- Researching the trend in the target market
- Checking compliance with the financial lending regulations
- Creating reasonable billing plans for scheduled paybacks
- Expanding knowledge about lending practices in the Philippines in various areas
What Experiences Or Skills Do I Need To Succeed In This Industry?
Having a formal education about finance is helpful but not a must. As mentioned in the last tip, you need to put value in investing in yourself to learn the related skills. In addition, abiding by the laws and regulations in starting a lending business in the Philippines is also essential.
How To Start Loan Business In The Philippines: Conclusion
By planning carefully, setting up a lending business in the Philippines can be very profitable. However, setting up this business model may not be as easy as it seems since you need to invest quite a lot of money/time.
It’s always very critical to pay attention to your business plan, your finances, and any risks, as there are many different pitfalls business owners fall into when setting up a lending business in the Philippines. When you consider if starting a loan business in the Philippines is right for you, it’s recommended to gain some experience working in an environment that offers this service so you can first-hand see what it is like before you take the dive.