How to start a lending business or company in the Philippines? Lending money to those who need it can be a profitable business. With the proper management of your funds and control of risks involves in extending credit to borrowers, running such venture can give you favorable return of capital or investment. You can expect more people wanting to borrow money, amidst the economic crisis our nation is now facing. The credit industry has many players, such as banks, financing companies and other financial institutions. However, there are still specific markets which you can successfully target to extend your fund for lending. You just need to be strategic and prudent enough to ensure that your loans and receivables are reasonably collectible.
Establishment, operation and regulation of lending companies in the Philippines are govern by the Republic Act No. 9474, known as the “Lending Company Regulation Act of 2007”. Moreover, lending companies are under the supervision and regulation of the Securities and Exchange Commission (SEC). Lending companies which are subsidiaries and affiliates of banks and quasi-banks is further subjected to BSP supervision and examination in accordance with Republic Act No. 7653. The following are the things you must know in starting a lending company in the Philippines.
What is a lending company?
Lending Company shall refer to a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than nineteen (19) persons. It excludes banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law. Lending companies are also synonymous with lending investors .
Form of business or organization
A lending company shall be established only as a corporation. Existing lending investors organized as single proprietorships or partnerships are disallowed from engaging in the business of granting loans to the public one year after the date of effectivity of RA No. 9474.
Corporate name requirement
The words “Lending Company” or “Lending Investor” or any other word descriptive of its primary activity of granting loans to the public except words commonly used to identify financing companies shall always be included in the corporate and trade name.
Capital Requirement
The minimum paid in capital of any lending company which may be established after the effectivity of this law shall be One million pesos (P1,000,000.00
The SEC may prescribe a higher minimum capitalization if warranted by circumstances.
Should a branch, extension, satellite office or unit be established, the excess of the required minimum paid-up capital may be applied to the additional capital requirement for the proposed branch, extension, satellite office or unit, as follows:
PhP300,000.00 : Metro Manila and other first class cities;
PhP150,000.00 : Second class and other cities;
PhP 75,000.00 : Municipalities
Citizenship Requirements
At least a majority of the voting capital stock shall be owned by citizens of the Philippines.
The percentage of foreign-owned voting stock in any lending company existing prior to the effectivity of this RA9474, if such percentage is in excess of forty-nine percent (49%) of the voting stock, shall not be increased but may be reduced and, once reduced, shall not be increased thereafter beyond forty-nine percent (49%) of the voting stock of the lending company. The percentage of foreign-owned voting stocks in any lending company shall be determined by the citizenship of the individual stockholders. In the case of corporations owning shares in a lending company, the citizenship of the individual owners of voting stock in such corporations shall be the basis in the computation of the percentage.
No foreign national may be allowed to own stock unless the country of which he is a national accords reciprocal rights to Filipinos.
Requirements for Securing an Authority
A lending company shall file with SEC four (4) copies of a duly accomplished application form to operate as a lending company, signed under oath by the President, together with the following documents in the prescribed form:
1. Information Sheet;
2. NBI clearance of each director/officer;
3. Foreign directors/officers, in addition to the NBI Clearance, shall submit a clearance from the Bureau of Immigration (BI), a photocopy of his passport showing a valid visa or stay in the Philippines, ACR i-card, and a work permit issued by the Department of Labor and Employment;
4. President’s Sworn Statement and Undertaking that the corporation will not accept or solicit investments, other than loans, from more than 19 persons without SEC approval, and upon presentation of valid claims, it shall immediately indemnify or return the investments of persons from said unauthorized public solicitation of funds; Moreover, the sworn statement shall likewise contain an undertaking that the country or state of the foreign applicant allows Filipino citizens and corporations to do lending business therein.
5. For an existing lending investor applying for a Certificate of Authority, it shall submit an external auditor’s sworn statement and undertaking that based on his/her examination of the corporate books of accounts and other related records of the corporation, it has not accepted or solicited investments, other than loans, from more than 19 persons without prior compliance with Sections 8 and 12 of the Securities Regulation Code and its Amended Implementing Rules and Regulations.
6. Business plan including method of marketing its product and sources of the funds and maturities of credit; and
7. Statement of its compliance with Rule 17.1(2)(A)(i) and (ii) of the Amended Implementing Rules and Regulations of the Securities Regulation Code.
Requirements for branches, extension or satellites offices or units
1. Loan transactions shall be booked in the authorized offices of the lending company;
2. No lending company shall establish or operate a branch, extension office or unit or satellite office without prior approval by the SEC. The following documents shall be submitted for the opening of a branch office:
a) Information Sheet on the proposed branch;
b) NBI clearance of the manager, cashier and administrative officer of the proposed branch;
3. The Certificate of Authority to operate a branch, extension office, unit or satellite office shall be coterminous with that of the Head Office.
Licensing Fees
1. Initial Application Fees shall be paid to SEC at the time of filing of application
a) Head Office –
A fee of 1/10 of 1% of the paid-up capital of the lending company shall be paid for the issuance of a Certificate of Authority to Operate as a Lending Company.
b) Branch, extension office, unit or satellite office
A fee of 1/10 of 1% of the assigned capital of the branch, extension office, unit or satellite office shall likewise be paid for the issuance of an original Certificate of Authority.
Annual fee
An annual fee shall be paid not later than forty five (45) days before the anniversary date of the CA.
1) Head Office – 1/8 of 1% of the required paid-up capital
2) Branch Office – 1/8 of 1% of the required paid-up capital
Commencement of Operations
A corporation/company that has been duly registered and granted a Certificate of Authority to Operate as a Lending Company shall commence operations within one hundred twenty (120) days from date of grant of such authority. Failure to commence operations within said period shall be a ground for the suspension of its CA.
Use of Funds
Lending Companies shall use at least 51% of their funds for direct lending purposes.
Investment to net worth ratio
The total investment of a lending company in real estate and in shares of stock in a real estate development corporation and other real estate based projects shall not at any time exceed twenty-five (25%) percent of its networth.
Amount and Charges on Loans
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 Republic Act No. 3765, otherwise known as the “Truth in Lending Act” and Republic Act 7394, otherwise known as the “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.
In accordance with the Truth in Lending Act and prior to the consummation of the transaction, a lending company shall furnish each debtor a disclosure statement, setting forth, to the extent applicable, the following information:
i. The principal amount of loan;
ii. Rate of interest of the loan;
iii. Service or processing fee, if any;
iv. Amortization schedule;
v. Any penalty charge for late amortization payment;
vi. Collection fee, if any;
vii. Notarial fee;
viii. All other fees in connection with the loan transaction;
ix. Description of the collection and lien enforcement procedures; and
x. Method of calculating the total amount of obligation in case of default.
Maintenance of Books of Accounts and Records
Every lending company shall maintain books of accounts and records as may be required by the SEC and prescribed by the Bureau of Internal Revenue and other government agencies. In case a lending company engages in other businesses, it shall maintain separate books of accounts for these businesses.
The Manual of Accounts prescribed by the BSP for lending investors shall continue to be adopted by lending companies for uniform recording and reporting of their operations, until a new Manual of Accounts shall have been prescribed by the Sec.
It shall issue the appropriate instruments and documents to the parties concerned to evidence its lending and borrowing transactions.
Source:
Republic Act No. 9474 “Lending Company Regulation Act of 2007”
Implementing Rules and Regulations of Lending Company Regulation Act of 2007 (Republic Act of 2007)
Victorino Q. Abrugar is a marketing strategist and business consultant from Tacloban City, Philippines. Vic has been in the online marketing industry for more than 7 years, practicing problogging, web development, content marketing, SEO, social media marketing, and consulting.
Dear sir/madame,
I have a few question as follows:
1. For the capital requirement; as we are a small time lending company is it possible to start this kind of business with a starting capital of 100,000 pesos?
2. Is there any problem if we are just 3 persons in this lending business?
– My mother, brother and I?
Under the lending Act of 2007 a lending company should have a minimum paid in capital of P1m and it should be organized as a corporation. Edgardo T Tipa 09279077879. I conduct seminar on how to set-up a microlending company.
Hi sir….how much po pf nyo for the seminar?
I have been into this business but not yet registered. I wonder why government has to restrict us with using only 51% of funds for lending purposes? And why do we need 1M for minimum paid in capital. There should be a provision for small time lenders. Kaya nga mag business para kumita pero it looks like government is discouraging small time lenders. IMO
Under the lending Act of 2007 a lending company should have a minimum paid in capital of P1m and it should be organized as a corporation. Edgardo T Tipa 09279077879. I conduct seminar on how to set-up a microlending company.You can use even all your funds in the lending business not only 51% this only refers only if you will use the funds in investing in real estate.
Good day! I just want to ask if your capital is only 100,000 will it fall on microlending company? and if so Do I need to still register sa Sec, since I’ve read na ang capital sa sec should be 1M. please advise.
Hope you can answer my questions. thank you
Are Lending Companies allowed to obtain Subsidiaries and Associates?
Hello Mark,
Please find the answer in our forum
https://businesstips.ph/forum/business-tax-accounting-government-requirements/subsidiaries-and-associates-for-lending-company/
We will disable comments on the posts and don’t answer the questions here. If you have a question, please post it to our forum. Thank you.
Please read the lending Act of 2007 where you can find answer to your answer. Thanks Edgardo Tipa
Sir if we are 5 in the business having a 200k each coming from our savings, we’ve been working more than ten years Do we have to back up the capital we will share by aquiring some properties? Do the SEC will question us about our funds?
I am planning to operate a micro lending company. Do you have any schedule for seminar this coming June 2015?
Regards,
TP
Could I possibly start with 100,000.00 PHP which my target is a selected party, like small sarisari store?
If I want to start my own lending company what required do I need first nd how do I opened coz I had a business of dry goods store O merchandise but I need to open separately lending so pls guide me o what required do I need
tanung lng po umotang po kmi mag asawa s cost of money lending corp. ng 30k nakabayad kmi ng kalahati ang utang nalang namin ay 14k bigla po kmi nagkaron ng malaking problema d kmi nakakabayad ng limang buwan talagang wlang wla kmi tapos pumunta misis ku s office pra makipag usap sa panung paraan kmi makakabayad tapos my pina pirma s misis ku n saloob ng isang lingo pg hindi siya naka pagbigay ng 7k ay kukuha cla ng gamit s bahay kung anu daw yng kinohaan nila ng picture sa bahay yn ang kukunin nila pls help po kng anu ang magandang gagawin namin maraming salamat po,
pls help po nakautang kmi s cost of money lending corp. ng 30k nka bayad kmi ng 16 tapos yng natira di pa namin mabayaran agad bigla po kming nagipit tapos sabi nila kukuha sila ng applianses.
I am interested to attend. How long is your seminar on micro-lending and when is the next one?
Thank you!
sino gusto bomoo ng lending or microfinance boo tayo galing ako sa lending ill know how to run it pls contact if u like 09223614943..thank you..guys cebu city
What circumstances may SEC warrant a higher paid in capital?
Hello po tanong ko lang sana na pag mag aapply aku for micro lending anung klaseng papeles po kailangan galing sa banko ung 1M? at kanino ito ipapangalan kapag foreiners po ang mag oopen ng lending?
mahirap talaga pag ang bubuo is foriegner dapat meron cya compete paper sa kanyang self..tapos if galing sa bank yung 1m nyo kailangan mo mag hingi ng certificate na may 1m ka at my perma ng branch officer. ipapangan sa may ari po.
I want to register my small lending business,kaya lang kelangan namam na may 1m ka sa bangko..eh wala ako nun..kaya pending ngaun ang pagprocess ng papeles..pano naman kaming mga small lending business na gusto ngang magparegister pero pahirapan naman sa requirements???
Yan ang problema dhil ang Government wala yata talaga plan para sa maliliit na mga negosyante, dhil kung mayron mawawalan na ng customer ang mga banks o yung mga Lending Institutions na nagavail sa SEC. Isa pa. kaya hindi mawala ang 5/6 dhil khit malaki ang tubo, makakautang ang kht na sino ora mismo ng walang Collateral o maraming checheburitche.
ask ku lang po pag sa DTI lang ngregister ng Lending business hndi pwede gamitin yung term na LENDING COMPANY?
Hi Cristine, yes it is not allowed, since according to the Republic Act No. 9474, known as the “Lending Company Regulation Act of 2007”, a lending company shall only be established as a corporation.
Sir, itong mga bumbay completo ba ang mga papelles nila? Bakit kapag kapwa Filipino ang hirap kapag ibang lahi madali?
Hello. You can check their offices if their licenses from different government offices (BIR, SEC, BSP) are displayed. They should also issue official receipts for the interest you pay. Thank you.
Any sample Articles of Incorporation, By Laws and Information Sheet please. Thank you!
Hi sir ,
How about pawnshop? I wanted to open a pawnshop business. May idea po kayo sa procedure? Mostly it will be gadgets at ibang electronic na gamit except jewelries ang tatangapin ko thanks
tanong ko lang po Sir Paano po kong maroon ako savings na 1 M sa bank tos yon ang pang start ko sa lending business,pwede po ba na mag isa ko lang or reall need na corporation talaga
Hello Nhor. Yes, it is a requirement that the form of the business is a corporation. It is required by law, which is Republic Act No. 7653. You cannot start a lending company even with 1 million or more capital if your business is not a corporation.