business loans

[Zenithleng]

any tips?

1. where to go to get one (which lending firm is best, or is it truly better to go to the bank...if so which bank?)
2. an example of an ideal "deal"
3. investment plans

[KuyaDanny]

Hard to answer without asking more questions...

a) How much do you want to borrow?
b) Who will borrow?
c) What is the loan for?
d) Has the borrower borrowed before?

[aticus]

Originally posted by KuyaDanny
Hard to answer without asking more questions...

a) How much do you want to borrow?
b) Who will borrow?
c) What is the loan for?
d) Has the borrower borrowed before?

Just to add to our good friend KD's post:

e) What are your prospects for repayment? What are your projected cash flows? If you have an existing business, what are your actual cash flows?
f) Do you have any outstanding liabilities? Any other loans from other banks?
g) What's your credit history like? Have you established some form of credit history with some banks? (ex. credit cards with BPI, savings account with Metrobank, that sort of thing...)
h) Do you have any form of collateral? Any land, other tangible assets (preferrably with no outstanding attachments/liabilities)?
i) In case you can't establish your own history, and you don't have many assets for collateral, do you have anyone who can vouch for your credibility/character to the bank? (This is a last resort; if you can't do it on your own, that's usually a very negative signal to banks, especially with today's current non-performing loans ratio...)

You also have to consider the type of business you're entering into. Many banks won't even consider a new Zagu outlet anymore (market over-saturated). Same goes for funky new business ideas with no real earnings prospects (ex. Protestant bookstore inside a Catholic school :) )

You need a good, solid business plan, with decent market research/analysis, steady cash flows, good long-term earnings prospects, a strategic market niche, etc., etc.
PLUS, you need a good credit history, excellent character references, some form of collateral or a decent bank balance, and you need enough moxie to impress bank officials. :) Don't forget to dress well, too. Self-confidence and an ability to express yourself is also important.

Good luck! :D

[swing]

Originally posted by Zenithleng
any tips?

1. where to go to get one (which lending firm is best, or is it truly better to go to the bank...if so which bank?)
2. an example of an ideal "deal"
3. investment plans

In the Philippines, 'WHO' you know is the KEY to EVERYTHING!

Having a good business plans, market research/analysis, etc., will 'probably' get you a loan but you will have to go through dozens of red tape and rub shoulders with everybody before your loan gets approved.

The rule of thumb in the Philippines is WHO you know and not WHAT you know.

Corruption knows no boundaries here!

[Zenithleng]

Thank you for your responses...to answer your questions:

i have a loan being processed at present. not over 1M, its for my 1 yr old business, a computer-rental shop (yes internet) that i want to upgrade, more pc-units, also add other bus appliances. plus i am considering opening another shop that would target network-gaming clients. however we are working on a strategy on inviting both internet-dedicated users and gaming clients.
i've never borrowed before and the business is steadily gaining income. the one i spoke to about it actually said that it is promising considering the location. its near a highschool and university.

the plan is to invest half of the money i borrow that will earn a dependable interest/month and sort of time deposit some to accumulate the principal amount in hopefully not more than 5 years. since i haven't borrowed before i have no outstanding liabilities. i have maintained a current savings account for more than 3 years.

the collateral i used is a real estate property which the bank appraised itself. i didn't even request the maximum loanable amount since i had a plan to follow. besides the bank has a 19.5% interest p/a.

right now all i'm doing is waiting. everything i have planned is all hanging...

the bank personnel are very friendly and we have talked to the branch manager herself but we do not know them personnally, and only met her when we inquired about the business loan.

[tazbivr]

You have room for a partner?If so how much to buy in?Interested only if below 1 million and with direct inovlvement of yours truly.
I really entered this forum because of piso from pexers from ada.
Guys how do you contact them direct I want to send a token.

[aticus]

Well, Zenithleng, it looks like you have a better plan than most. :) My only question is why you would leave half of the loan "idle" (meaning, put in the bank). I mean, no bank will give you 19.5% return on anything below P1 million, so that means you'll be "losing" money each day that money is in the bank. The only reason I can fathom for you keeping it in the bank is so you have some cash for emergencies, but half of the loan amount is too much of a burden. Perhaps 20 to 25% might be better. I mean, I presume you expect this loan to net you a return of greater than 19.5% for every peso spent, so why not use more of it to generate more revenue? :) Maybe buy additional games, offer additional services (like a printer or a xerox machine), things like that. :)

By the way, you may be able to get a better rate with other banks. Don't just apply to one, try to see about others. Which bank have you applied to anyway? Is it a large commercial bank? A thrift bank? A rural bank? The smaller the bank, the higher the rate, but the easier it would be to get the loan. You could also try banks like Planter's Bank, which targets small businesses such as the one you have. They may give you better rates. If you need help with them, just ask Noisy Cricket. He used to work there, and can pretty much answer your questions about it.

My dad is also with a bank, so in case you want other options, I'll be happy to provide some more.

Good luck!

[Zenithleng]

i'm not considering to convert this to a partnership yet tazbivr. probably in another year or so. it's still a baby. i like to think it as my baby. further, i have to re-acquaint myself to the principles applied in keeping the books for a partnership as well as the legalities it entails. after doing so, we could work on the best percentage offer and the issue on profit sharing and related stuff.

but for the sake of conversation, which aspects of the business would you like to have direct involvement with?

...you lost me at the "piso from pexers from ada" sentence.
i suppose to contact them (i assume ada and the other moderators), you'd have to email them first.

thanks aticus. i'm not keeping half the loan in a bank...like i said, sort of time deposit...about 1/5 is to be invested on a roll-over interest of 3% per month in one year (which is also renewable) and 1/3 invested on the same interest to be earned monthly which can be withdrawn (this'll be my monthly buffer to pay the bank's interest i.e. the bank would charge a 12T monthly interest. suppose the investment earns 6T monthly, the shop would only have to raise 6T more)
i know keeping money in the bank rather than investing it puts it to sleep ergo...puts me at a loss. this is why i also ask for investment suggestions.
the 19.5% is the loan interest. my investments other than the shop...sums to a 21% interest.

i already offer printing and the rest of the loan would be dedicated to strengthening the services i already have and like you said photocopying service and perhaps cd writing, we're also thinking of webpage designing, i'm already doing some copywriting work on occasion. there are a lot of areas where we can venture into, even tutorial services which at times we already do. however i do not want to broaden services too much too fast, its like biting more than i can chew.

Most banks we've been to are on "freeze loan" status. (thats what they told me) i do consider looking at other banks but this one is the only one that offers business loans readily accessible to us. based on what others say about the length of time it takes to apply for a loan, this one seems fine. though the interest percentage does make me gulp. but hey aren't businesses like that? a risk we have to take.

Maybe i can look for a Planter's bank branch here. what is your impression on prudential bank loans or philippine saving bank loans? i see their commercials on tv.

thanks for your insights they really help a lot.

[Zenithleng]

Originally posted by tazbivr
...I really entered this forum because of piso from pexers from ada.
Guys how do you contact them direct I want to send a token.


GETS KO NAH! :D :teehee:
anyway..more posts will be seen this friday until august...
and again maybe they have a website or something.

[aticus]

Hmm... Zenithleng, I'm still trying to see how all that would work out financially... even with a Time Deposit. Assuming you'd have half a million to invest, even at a net 15% return on TD, you'd still only earn a bit over 75,000 a year, which is just slightly more than 6,000 a month. Either you found a bank that gives incredible rates, or I'm truly out of the loop. :)

Be careful, though, since most of the banks that give superior rates aren't very stable. You'll find that the most stable commercial banks give lower interest rates precisely because they know they're more solid. Some banks and savings and loan associations give much higher rates (such as the Armed Forces Personnel Savings and Loans Association, Inc. or AFSPLAI, which can give you as high as 20% if you're with the military), but they are shaky, at best.

I'm still fundamentally against borrowing that much money just to "invest" much of it and hope to approximate the 19.5% loan rate. :) You're going to have a heck of a time trying, and I don't know if you'd want that burden. The only reason I can see you doing this is because you feel your income from the business may not be able to match your monthly amortizations... In which case, I'd seriously reconsider getting the loan in the first place. I mean, if your business can't meet the payments, then it would be digging a deeper hole, I feel, to borrow more than you need in hopes of using the surplus to help pay for the original loan.

I'm not knocking you in any way, of course, and I sincerely hope you'll be extra successful, but I can't help feeling a little concerned about that aspect of the "plan." :|

What do you think, KD? Any thoughts on this?

[KuyaDanny]

My own policy is to borrow only what the business needs. In this case, the business seems to be a computer rental shop. With all due respect, placing money in 3% per month channels is not your business, and I would advise you not to put money in such places without knowing the credit risks involved.

If your business is sound and profitable, it should be able to generate cash to pay for the loans without the need for such "yield improvement" mechanisms as your proposed high-rate placements.

I would avoid taking on too much risk when it is not necessary for the growth of the business.

[Zenithleng]

the 3%/month channels have been dependable because i have had such investments before. its supposed to be an assurance that i'd be able to pay monthly, i am thinking of the many variable factors with the monthly income, expecting the worst and working for the best.

anyway there is also a huge possibility that i'd open another shop...so i suppose i'd still be able to use all of it. then generate the monthly payments through both outlets.

or again maybe, after the first year, i mean when the business' performance is highly predictable, i could return half the principal amount. or can't i do that??

:) however i am considering your suggestions.

[tazbivr]

Zenithleng,
First of all I congratulate you on your entrepreneural spirit.it is what Filipinos need.I respect also the fact that you want it as your baby.GOD bless and i will be praying for your success.When the time comes that you believe you are ready for a partner my direct e-mail is rzmtazz@aol.com.Don't mistake me I am not a banker or a huge businessman.Currently i am a farmer,grains trader.I am just looking for avenues to diversify as the saying goes never place all your eggs in one basket.As to my involvement as partners we just arrive at decisions together.After all if we become joint as in partners we would be spending both our monies and our future.But run with it as I said,GOD bless.
As to the message for ada Piso mula sa pexers, I just feel for those kids.As i owe the LORD tithe, I wanted to send direct,maybe even match the Php 5,000.

[Zenithleng]

thank you for your business proposition tazbivr :) it will be very much noted in the future.
and it is very kind of you to share your blessings with the less fortunate, we all have to do our part and it can be done in many ways. i pray for your success as well and may God guide you in your endeavors.

[KuyaDanny]

Sorry if I sound like I'm nagging. But this case is potentially one of "overborrowing". If you are going to go through with this, you must choose an institution whose lending officers tend to be on the lax side of credit enforcement.

Any lending officer worth his salt will want to strike a balance between earning money for his bank (by lending you as much money as he can) and minimizing the risk of default. From time to time he will check on your business to make sure you are still within the bank's credit standards.

A potential problem may arise when he checks your financial statements and finds that a) you did not use the entire loan for the exact stated purpose; and b) you are accumulating excessive amounts of cash (which is what your placement will be counted as). Both cases will raise alarm bells in his head, and he might act to reduce the risk exposure to you.

How can they do this? By causing repayment of the loan either by accelerating the maturity, reducing your line, or cancelling it altogether.

I still think the prudent borrowing policy is to borrow only what your business will need, and pay it off as soon as you are able to. If the bank is willing to lend you more than you need, don't take everything. You can always keep a portion of your credit line as a buffer for emergencies.

Of course, you can choose to be on the level and declare at this stage exactly what you'll be doing, including the 3% investment plan. At least he can't accuse you of misrepresentation later. However, if you tell him that, he might decide to cut the amount of lending anyway.

[Zenithleng]

a friend also shared that if i pay the loan before the contract ends, some banks charge penalties...something about their own feasibility study being unaccomplished. is this why they will be alarmed if i earn more cash than what they thought i would? it would mean that if i show possibility of paying off the loan earlier their own set of studies are hampered?

judging from the past visits i had with the bank i am currently waiting for..as long as i pay the monthly dues, they won't have any problems with it. however she did say that after a year they would look at how my account is doing. am i correct (or nearly so) to think that, if they see that i am doing well, maybe then they would ask me to pay half the principal amount after the first year?

right now i am having thoughts of either investing in the 3% plan or opening another shop. but then this would require me to submit a new set of feasibility study, wouldn't it? would this require them to study my prospects like where i plan to open the new shop. and should i expect that they would want details on how i spend the money i borrow?

i am sorry to ask you all these questions and please accept my sincerest thanks to your replies and patience.

[KuyaDanny]

The prepayment penalty is charged by the lender to compensate for lost income and opportunities as a result of receiving funds ahead of schedule.

How do I explain this?

When a bank lends you money for, let's say, 2 years, it must also borrow money which it needs to pay back in 2 years, usually. The bank then counts on a stream of payments from you, which it uses to pay off its own borrowing. Obviously they should receive more from you than what they have to pay for the borrowing. The balance is what they keep as profit.

When you pay off early, there is a mismatch in the term of the funds. Maybe they have to pay off their own borrowing or find somebody else to lend to so that the funds remain productive. Both efforts cost money. So they charge you something to help pay for that cost.

Despite it being called a penalty, it often is cheaper to pay off the loan and pay the penalty, instead of the future interest.

Regarding my earlier point - the bank will not mind, and will be very happy, if you have plenty of cash as a result of your business being very successful. But if you have plenty of cash because you borrowed too much and used the money for purposes other than what you said you would, that is another matter altogether.

[Zenithleng]

[taking notes]

knowing your stand on the other investment i plan to make, i suppose you would prefer advising me to invest the money intended there as capital for another internet shop. because then i would be investing the borrowed money in the business, though just another outlet.

i found another location which promise to be an ideal spot. it would not affect the one already existing because they are about 30 mins commute apart.

[tazbivr]

Zenithleng,
Just my two bits in the pond.
I borrow constantly from banks both here in the states and in the Philippines. It is often a joke when people tell me that there is microfinancing to be had there.Leastways from my point of vies it is.
1.When you borrow and even before you borrow, factor in the service charge which would never appear on paper. I borrowed 130,000 from a rural bank. The actual money I received in cash was 103. On paper they were charging me 22% per annum, but in reality it is much more.The 130 I applied for was only for 6 months, the other ways they get you is 5000.00 for service charge then you have to pay x amount for Insurance plus tax.
2. Before you borrow plan already with your existing cash flow how long you will pay the loan.DO NOT PLAN ON HAVING ADDITIONAL INCOME.If you do if the next venture fails you would drag everything with you and in the end the banks will have everything and you back to square one.
3.Factor in 30% loss or more to the loan so if you borrow, 130 thousand plus 39 equals 169 plus the interest to the loan. Then when you compute your cash flow and see that you would still make it then and only then would it be prudent to borrow.
4.Business is a gamble.Before you sign just ask this question to yourself privately."double or nothing"?If you like the answer sign.

Not much help am I? Better scare you know than see you weep later.Guts do you have it? Are you willing to do everything to succeed? Everything has a price, remember that.I speak from experience.

[aticus]

I'd like to add to the posts that K.D. put up.

1) It is vitally important that you be absolutely transparent with your lending bank regarding EXACTLY how you intend to use the money they lend you. If you fail to do this, and you use the money for other things, and the bank finds out (and, believe me, they will), you are in very deep trouble. Why? Well, the least that will happen is you will lose whatever amount has yet to be released, you will receive a demand letter requesting immediate repayment of any outstanding liabilities PLUS penalties, and you will be forced to shelve all your expansion plans. The absolute worst would be they sue you for fraudulently mis-representing the terms and details of your loan application, and you may go to jail.

2) I strongly support KuyaDanny's call to only borrow what you need. It doesn't make sense to overborrow only to try to make money from the money, and not your core business. I have two fundamental problems with this scenario:

a) It indicates you have no confidence in your current business to generate enough revenue to pay off your loan. In which case you either lower the loan amount, or don't loan at all until your revenue can justify it.
b) It means that you're trying to do TWO businesses at once (the shop and the 3% money-making scheme). Believe me, as an entrepreneur myself, if you do not concentrate your efforts on making your current business solid, and instead try to do some hocus-pocus money-generating scheme on the side, YOUR BUSINESS WILL SUFFER. Trust me.

3) I may be going out on a limb here, so pardon me if I'm off-base, but there doesn't seem to be a legal way of "earning" a guaranteed 36% return on your cash unless you put it in a recognized bank or savings and loan type institution which gives FANTASTIC rates. Two more problems crop up with this scenario:

a) If the bank/lending institution is legit, then it's probably VERY unstable, as only groups which have a dire need for immediate cash would be insane enough to promise returns that high. It's unsustainable, you see, as they will have to make much more than the 36% they're giving you just to cover the interest they're paying you. It doesn't happen here, at least not legally. Sure, you can get some returns approximating that with some financial instruments, but these (like some kind of bank-run mutual fund) are NOT GUARANTEED, in which case your cash flows may be severely irregular and uncertain.

b) If you're NOT going to a legal lending institution (which, and I hope you'll pardon me again, I suspect), then you're probably going to one of those pawnshop/jewelry shop/money-changer type businesses, where they promise you a "guaranteed" 3% per month on your "principal," but with stringent conditions (ex. You can't withdraw your principal immediately... you must give them 2 weeks notice, etc., etc.). What you are then faced with is actually a very dangerous proposition. Let me explain:

You see, these kinds of groups really need to BORROW money, and quite often (especially for businesses engaging in black-market dollar trading) banks won't lend these groups any money because they're engaged in illegal, unregulated activity. What these "businesses" then resort to is they try to find friends who will "invest" money in them, use their money as funds to run their business, and pay out an "interest" equal to about 3% or some fantastic amount. What they're just doing is borrowing money from YOU, and then risking that money against things like dollar fluctuations, etc., in the hope that they can make enough to pay you back. Please note that they generally want to keep the principal as long as possible (because they can't afford to return it right away, if at all) and instead will only give you that 3%. You're now acting like a 5-6, only with much, much better rates for them. (Heck, some of them may BE 5-6 operations, using your money at 36%/annum and loaning it out at 240%/annum to their clients!) They're happy, and you THINK you're happy coz you get a "guaranteed" 3%/month.

But beware. First, this is illegal. And if any of you are caught, YOU CANNOT RECOVER YOUR MONEY. You see, you are not allowed by law to benefit from illegal activity, and if your partner-in-crime chooses NOT to return your money, YOU CAN'T SUE HIM/HER. The law won't give you the option to recover anything based on an illegal contract. Sorry ka na lang, so to speak.

Second, THIS FORM OF BUSINESS IS HIGHLY UNSTABLE. If, at any time, that "business" runs out of cash (and they often try to borrow from more "friends" just to cover their interest "payments"), you're done for. They're not even insured with the PDIC, so you can't even claim some protection on the amount you "deposited." And, believe me, I've seen many a venture such as this fail, with spectacular results. Remember the famous Bunny German pyramiding scandal? Sounds EXACTLY like this...

So, to end this rather lengthy post (sorry...), I strongly recommend against your course of action. Please reconsider. It sounds like you have a good business going, and it sounds like you have solid prospects for expansion. Nurture the opportunity. Don't blow it with anything questionable or illegal.

You can rarely take shortcuts in business and expect to not pay for them. Someday, your actions will affect your business, and your good standing in the business community. I wish you well in making the right decisions. :)

[Zenithleng]

thank you very much for the eye-openers friends. i am glad i started this thread. the thought that i may put myself in an illegal situation never crossed my mind. i have asked a meeting with my family regarding these suggestions you have aired. thank you for your confidence in the business aticus i don't mind the lengthy post you make here for they are truly helpful.
i'm having direct realizations regarding business being a gamble. and the all or nothing question, i feel, is answered quite favorably. i hope my kins support me when i tell them that i intend to use the whole borrowed amount to the business. maybe they can suggest other courses of action too.
the last time we had a talk with the bank manager, we have told her of the other businesses we have aside from the com rents. she said she didn't see it in me to do so much my age. but she said it was great that i have started these ventures this early.
they are giving me a 19.5%per anum interest to be paid monthly with a requirement that i deposit 10% of the loaned amount in their outlet. i am expecting that they are to deduct the first month's payment upon the release. at this point i haven't read any contract from them.
in my computations, i have alloted a 25% annual interest divided into 12 months for the budget, and came up with a target income/month [very conservative computations because i am quite pessimistic]. and i plan to leave 20% of the borrowed money in the bank branch. would this make them happy?
so far everything seems to be looking up, even without the side investments, however legal they are. nevertheless, i cannot find it in me to trust that everything would go smoothly to take it for smiling granted, so i look forward to consulting my kins.
as to having what it takes and the will to do everything to succeed, i have made enough sacrifices already when i started this, there's no turning back. might as well take a bath when you're already wet, as my father used to say.

[Edited by Zenithleng on 06-01-2001 at 04:46 PM]

[tazbivr]

Start the engine and gun the motor. Plow on babe!!!
Guts that's what she's got Guts. God bless.
keep on dreamin its the gasoline of entrepreneurs.

[Zenithleng]

:sunnysmile:
thanks for the support tazbivr
i'll see what's to happen in the following weeks while my application is being processed. right now i'm looking forward to tomorrow. we have more questions to ask the next time we visit the bank. if you have more reminders and advice, i'd be more than happy to read them.

[aticus]

Try downloading this very simple Excel program I made to help you track your savings. It's located on this thread on "financial independence" I'm sure you'll find interesting. The very same principle applies to loans and expenses. Just change the name of the fields. You'll understand when you see it. :)

Here's the link:

http://www.pinoyexchange.com/forums/showthread.php3?postid=966374#post966374

KuyaDanny put it up on the web for easy download purposes. Good luck! :)

[Zenithleng]

thanks for the file aticus and kuyadanny. it also gave me an idea on how to streamline expenses. made me appreciate the excel program more *pexadik*, actually i have been using it for months now with separate files to monitor the daily sales, expenses and quarterly income statement of the shop.

btw, the whole family has expressed support on my plan of expansion. with perseverance, God's guidance, a bit of luck and added spiritual strength from our father...we would be able to pull this off. plus the schoolyear has already openned here.