Productive Loans: Your Ideal Partner in Building Your Business
You may have a great idea for a business, but you do not know where you should start. Usually, the problem lies with business financing. Loans are available to bankroll a business, which you may already know. But did you know that there is a type of loan specifically for starting a business? It is called a productive loan.
What is Productive Debt or Loan?
A productive debt or loan is a type of financing that is designed to help individuals start or grow their own businesses. This type of loan can be used to purchase equipment, hire employees, invest in marketing or advertising, or cover other business expenses. A productive loan is different from other types of loans because it is typically based on the potential profitability of the business, rather than the creditworthiness of the borrower. The lender will evaluate the business plan and financial projections to determine whether the loan is likely to be productive or profitable for both the borrower and the lender.
To qualify for a productive loan, borrowers may need to provide a detailed business plan, financial statements, and other documents that demonstrate their ability to repay the loan. The terms of the loan, including the interest rate and repayment schedule, will depend on the lender and the borrower's creditworthiness.
A productive loan can be a useful tool for entrepreneurs who are looking for a business loan in the PH to start or expand their own business.
Types of Productive Credit Based on Use
Productive loans can be categorized into different types based on their intended use. Some common types of productive loans include:
- Startup loan: This loan is designed to help new businesses get off the ground by providing financing for expenses such as equipment, inventory, and working capital.
- Equipment loan: This loan is used to purchase equipment needed for the operation of the business, such as machinery, computers, or vehicles.
- Working capital loan: This loan is designed to help businesses cover day-to-day expenses, such as rent, payroll, and inventory, during times when cash flow is tight.
- Commercial real estate loan: This loan is used to purchase or renovate a commercial property for use in the business.
- Business acquisition loan: This productive loan example is used to finance the purchase of an existing business.
- Accounts receivable financing: This type of loan allows businesses to borrow money based on their outstanding accounts receivable or the amounts owed to them by their customers.
The specific terms and eligibility requirements for these loans will vary depending on the lender and the borrower's creditworthiness. It's important for businesses to carefully consider their financing options and choose the type of productive loan that best meets their needs.
Types of Productive Loans Based on Term
Productive loans can also be categorized based on their terms, which refer to the length of time over which the loan will be repaid. Some common types of productive loans based on terms include the following:
- Short term loan productive loan: This loan typically has a repayment period of less than one year and is used to finance immediate business needs, such as inventory purchases or unexpected expenses.
- Medium-term loan: This loan has a repayment period of one to five years and is used for larger investments, such as purchasing equipment or expanding the business.
- Long-term loans: This loan has a repayment period of more than five years and is used for larger investments, such as purchasing real estate or funding major expansion projects.
- Revolving credit: This type of loan provides businesses with access to a line of credit that can be drawn on and repaid multiple times. The terms of the loan typically include a maximum credit limit, an interest rate, and a repayment schedule.
Like the ones above, the specific terms and interest rates for each type of loan mentioned above will vary depending on the lender and the borrower's creditworthiness. It's important for businesses to check the terms and repayment schedule for each loan option and choose the option that best meets their needs and budget.
Things to Consider Before Applying for Productive Loans
Before applying for a productive loan, someone who is starting a business should carefully consider their financial needs, and the risks associated with taking on debt. Here are some crucial factors to consider:
- Business plan: It's essential to have a well-developed business plan that outlines the market opportunity, target customers, marketing strategy, and financial projections. The business plan should demonstrate the viability of the business and the potential for profitability.
- Cash flow: It's important to have a good understanding of the cash flow needs of the business, both in the short-term and long-term. This includes forecasting revenues and expenses and developing a budget that can help the business stay on track.
- Collateral: Some productive loans may require collateral, such as real estate or equipment, to secure the loan. It's important to evaluate the risks associated with providing collateral and to check the terms of the loan.
- Loan terms: The loan terms, including the interest rate, repayment schedule, and any fees associated with the loan, should be carefully evaluated to ensure they are affordable and fit within the business budget.
By considering these factors and developing a solid plan for managing debt, someone who is starting a business can make informed decisions about whether a productive loan is the right choice for them.
Where to Apply for a Productive Loan for Business Capital in the Philippines
- Banks: Most banks in the Philippines offer several types of loans for small and medium-sized businesses.
- Government institutions: The government of the Philippines provides loans to small and medium-sized businesses through various institutions, such as the Small Business Corporation, which is attached to the Department of Trade and Industry.
- Microfinance institutions: Microfinance institutions provide loans to small businesses that may not qualify for traditional bank loans. These loans are typically designed for businesses that need smaller amounts of capital, such as start-ups or micro-enterprises.
- Online lending platforms: There are also several online lending platforms in the Philippines that offer productive loans to businesses. These platforms typically have a quick and effortless application process and can provide funding in a matter of days.
- Esquire Financing Inc. or EFI: When it comes to SME business loan in the Philippines, EFI is on top of the game with its non-collateral loans that have minimal documentary requirements and fast turnaround time.