Guide to business loans

Why apply for business loans?

Many people use personal loans for purposes other than their own personal use. Some of them end up using the loan for business purposes, whether it be for starting a small business, expanding operations, or bankrolling the launch of new products. Banks don’t require a collateral for personal loans, which makes it a good choice for business loans and a viable avenue to get funding.

Personal loans vs. SME business loans

While you may use a personal loan to finance your business, a lot of major banks also issue business loans targeting small and medium enterprises (SMEs). These loans provide financing options custom-made for business, such as straight loans, credit lines, and more. Loan terms and interest rates on these offerings, while usually more favourable than those on personal loans, vary depending on the nature of business, the amount to be borrowed, and the type of financing needed. And usually, business loans can take a longer time to be approved and require more paper documents.

 

A prudent thing to do is to compare the interest rates from personal loans, which are readily available in most banks’ websites, with the rates for the SME loans, to see if a particular SME loan is really suited for your business finance needs or if you’re actually better off with a personal loan.

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How much loan can I borrow to start a business?

Depending on the lending company, the usual maximum amount that lenders are willing to grant on a personal loan can reach up to ₱2 million. Assuming that starting a business usually takes ₱1 million to ₱2 million in expenses, depending on the scale, this maximum amount can be quite enough. However, take note that the actual maximum amount a bank can grant will definitely depend on a borrower’s monthly income and the duration of the loan being requested. So if your requested loan is in the millions, you better have a sizable monthly income for better chances of getting loan approval.

As for using a personal loan for business purposes, most banks would point you to their small business loans. Nevertheless, you can consider personal loans as an option. We provided computations for loans from two banks below:

Business loans from UCPB

Getting a personal loan worth ₱1,000,000 for any purpose, including business loans, through the UCPB SalarEasy Salary Loan and agreeing to pay the balance over three years will lead to a monthly amortization of ₱42,778, inclusive of a ₱1,500 fee and ₱540,000 in interest payments, which is 35.03% of the principal borrowed. The UCPB personal loan, with minimum loan amount of ₱30,000 is available to people of ages 23-60, with minimum monthly income of ₱30,000, an active credit card, and a checking account.

Business loans from Sterling Bank of Asia

Getting a personal loan worth ₱1,000,000 for any purpose, including business loans, through Sterling Bank of Asia’s personal loan offering and agreeing to pay the balance over three years will lead to a monthly amortization of ₱42,778, inclusive of a ₱2,000 fee and ₱540,000 in interest payments, which is 35.03% of the principal borrowed. The UCPB personal loan, with minimum loan amount of ₱30,000 is available to people of ages 21-65, with minimum monthly income of ₱30,000, a landline number and at least 1 year residency if renting.

What are the requirements of business loans?

Most banks offering personal loans for business and other purposes will only take about a week or less to have your application approved. It’s always best to be prepared ahead of time and prepare the right documents needed. Some of these documentary requirements are:

 
●  Photocopy of one or two IDs, preferably government-issued

●  Proof of billing with your address

●  Certificate of employment and latest payslips, preferably three months’ worth (for employed applicants)

●  DTI or SEC registration documents (for self-employed applicants)

●  Latest BIR Income Tax Return filings
 

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Benefits and disadvantages of using personal loans for business

 

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Some of the advantages of using personal loans for business is the absence of need for collateral and a faster application and approval process for getting the needed funds. Contrary to business loans, which may require more time and documents upon processing, personal loans are typically easier to get approved.

x-mark.pngHowever, personal loans usually carry higher interest rates compared to other loan products. Not to mention that if things get bad on the business front, a person’s own credit status gets imperilled as well. So we recommend proceeding with caution with regards to using personal loans as business loans.
 


Are you searching for the best personal loans to be used as business loans? Compare personal loans with GoBear to find the best rates available.

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