5 Financing Options for Filipino Small Business Owners Who Need Funds

It’s not unusual for small business owners In the Philippines to face financial setbacks such as limited access to capital, difficulty in securing loans, and a lack of tools for managing cash flow effectively. These challenges can hinder a fledgling enterprise’s chances at growth and expansion, as well as its ability to seize profitable opportunities at the right moment.

This is where financial institutions can step in and help. Traditional banks, as well as financial technology or fintech companies like Maya Business, can provide small- and medium-sized enterprises (SMEs) with some much-needed financial support and resources. Solutions like a business loan will allow the latter to fund their operations, invest in new equipment or technologies, expand their market reach, and hire skilled talent.

By offering various financing options tailored to the specific needs of SMEs in the Philippines, these institutions act as crucial partners in driving business success in the country. Their expertise and support can empower the sector that makes up sizeable portion of all business establishments in the country, helping entrepreneurs overcome their most common financial barriers and realize their full potential.

To that end, Philippines-based SMEs that are in need of funding can explore these options to overcome their biggest financial challenges and pave the way for their own growth: 

Bank Loans

Bank loans are a traditional financing option where businesses borrow a specific amount from a bank and repay it over a predetermined period, typically with interest. SMEs who are in need of a business loan can often find a matching financial program from commercial banks or financial institutions. The main advantages of loans for businesses are their accessibility and structured repayment terms. However, they often require collateral and thorough documentation, which can be challenging for businesses with limited assets or poor credit history.

Because they offer higher loan amounts and longer repayment terms, bank loans are ideal funding sources for long-term investments that generate returns. A loan from a traditional bank or even a neobank is best used to expand operations, purchase equipment, or acquire real estate, for example.

Business Lines of Credit

Aside from taking out a traditional business loan, it’s also an option for SMEs in the Philippines to apply for a business line of credit. This financial program provides businesses with a predetermined amount of funds that can be used as needed. Unlike traditional business banking loans, credit lines only require the borrower to pay interest on the amount they use.

Business lines of credit can be obtained from banks, credit unions, or online lenders. They offer flexibility by allowing businesses to access funds for short-term needs, manage cash flow fluctuations, or take advantage of immediate opportunities. One example of this is Maya’s Flexi Loan, a program that presents SMEs in the Philippines with a credit line in a matter of minutes. Such a solution will allow entrepreneurs to fund their business ideas and pursue rapid growth.

It’s worth noting, though, that lines of credit often have higher interest rates compared to traditional loans. They may also have annual fees or maintenance costs, and access to credit limits may be restricted based on the business’s performance. As such, it’s important to look carefully at the terms and conditions of this particular financing option before signing up for one.

Crowdfunding

Crowdfunding, which refers to the practice of raising a big amount through the small contributions of a number of people, is another effective way to finance business investments. There are crowdfunding platforms that are specifically designed to enable MSMEs to raise funds from a large population of individuals who believe in their products or services. These platforms serve as intermediaries by connecting businesses with potential investors or backers. There are different ways to entice a crowd to finance a business venture, the most common of which is asking for donations or offering rewards or equity for their support.

The main advantage of crowdfunding is the ability to generate publicity and market validation while securing financing. But do keep in mind that crowdfunding success is not guaranteed. The strongest crowdfunding efforts are often the result of a well-planned campaign to attract investors. In addition, businesses may need to offer supporters something in return for their funding. Crowdfunding is ideal for startups, innovative products or concepts, or projects with a strong social or community focus.

Venture Capital

In the venture capital model, investors provide funding to businesses in exchange for equity. Venture capitalists typically invest in early-stage or growth-stage companies with significant market potential. They offer not only capital but also expertise, industry connections, and guidance to support business growth.

Venture capital firms or individual investors act as the funding source for an eligible business. Entrepreneurs should know, however, that venture capital funding is highly competitive and typically limited to businesses with exceptional growth potential. To get into such a program, businesses must be prepared to give up a significant portion of ownership and control, undergo rigorous due diligence, and potentially face changes in strategy or direction.

Trade Credit

Trade credit is a financing option where suppliers extend credit terms to businesses, allowing them to purchase goods or services with delayed payment. Suppliers themselves grant trade credit to their customers.

This arrangement helps manage cash flow and provides short-term financing without interest charges. However, trade credit availability and terms depend on the supplier’s discretion. It’s necessary for businesses to maintain good relationships with suppliers to continue receiving trade credit. This financing option is best used for purchasing inventory or raw materials, allowing businesses to fulfill orders and meet customer demands.

Conclusion

It can be quite a challenge for SMEs to find ideal partner financial institutions. But the reward for doing so is well worth it. Connecting with a reputable financial provider can enhance a business’s credibility and reputation, which will instill confidence in potential investors, suppliers, and customers.

If you lead an SME, make it your goal to choose the right financial provider and the right financing option for your business’s particular needs. The right financial partner will not only give you access to the funds you need to run your business; they may also serve as a trusted advisor and contribute to your company’s long-term success and sustainability.