How to Get Approved for a Business Loan in the Philippines

In business, there comes a point when external funding—be it for growth and expansion or assistance through challenging times—becomes necessary. Regardless of the reason, a business loan is an excellent option if you need extra cash for your company.

Not all business loan applications get approved, though. Your company's financial standing and your credit score, among other factors, influence how lenders assess your loan request. 

This is why it is important to be fully prepared. In this article, learn business loan tips and essential requirements to help get your application approved.

5 Business Loan Tips: How to Get Approved

The following tips for getting a business loan will help you better demonstrate your company's cash flow potential to lenders and boost your chances of getting a loan approval: 

Tip #1: Determine the Purpose of Your Business Loan 

Before you start thinking about how to get a business loan approved, ask yourself: What is the loan's intended purpose, and how much can I afford to borrow?

A business loan can help boost your sales and marketing efforts or update your existing technology. It’s ideal for capital or administrative investments or equipment and inventory. You can also use it to expand your operations and hire additional staff. 

Financial institutions prioritize borrowers whose loan purposes add value to their businesses or positively impact the community through more jobs or real estate purchases. 

Tip #2: Create a Strong Financial Plan

A solid financial plan that details your goals, including how you plan to use and repay the loan, can help you with your business loan application.

Detail your forecasted spending and earning timeline. Make sure to show that your business has enough cash flow for recurring expenses and loan repayments. 

If you think lenders will not be pleased with your financial standing, acknowledge that your credit history and financials are already part of your company's background—but use your financial projections to show that you can do better. 

Try shortening your accounts receivable turnover. Consider negotiating a longer credit period with your suppliers. Accurately calculate and pay your government dues on time to avoid penalties. 

Make your plan as detailed as possible. This way, lenders will recognize that you have concrete steps in place to improve your business.

Related: How to Make a Business Plan Like a Pro: Step-by-Step Guide and Samples

Tip #3: Check if You Meet the Business Loan Criteria

Check how financial institutions will evaluate your business, so you can make preparations to increase your chances of getting approved. They will look into the following facets of your business:

✅ Years in Business 

To qualify for most business loans in the Philippines, your business should have been operating for at least two years to generate a business financial rating score that lenders can use to evaluate and process business loans.  

Although online and startup business loans without collateral may have less strict requirements, they still require at least six months of business operations. 

✅ Credit History

When you apply for a business loan, lenders consider your ability to repay the loan on time. 

They will access your credit history through a centralized database. The thought process is: if you’ve diligently paid your previous borrowings, you will likely do the same for your new loan.

They can also evaluate your company's audited financial statements. These channels create a credit score, which describes your likelihood of repaying the loan.

✅ Cash Flow

Like your credit history, your financial statements say a lot about how you earn and spend. Your business's cash flow history plays a huge part in whether your business loan application gets approved.

Complete and accurate records ensure that your financial statements positively reflect your business dealings. Many software programs help businesses digitize receipts, invoices, taxes, and more in one integrated solution. Since most of these software programs are handled by a team of accounting experts, you can rest assured that your records are made precisely and error-free.

Also, your cash flow projections should show how your new product or service will bring income to your business. In the lender's eyes, this forecast shows how you will spend their funds. Moreover, it shows where loan payments will come from.

✅ Debt-to-Income Ratio 

Lenders often also examine debt-to-income ratio, which measures how much money a business brings in versus how much it owes. A lower debt-to-income ratio^[1] means a business can better repay the business loan. 

✅ Credit Score

If a business lacks sufficient history to show financial capability, lenders may check your credit score instead.^[2] After all, owners greatly influence how companies manage their finances.

So whether you see a business in your immediate future or not, take care of your finances as early as possible. Diligently pay your bills on time. Rather than splurging on unnecessary purchases, create healthy spending habits and exercise foresight to fund your future.

✅ Character

Put yourself in the shoes of a lender. As you converse with a potential borrower, they show a noticeable lack of confidence in the marketability of their products. Will you approve their loan? Probably not.

Make a good first impression to add value to your application. Lenders feel secure knowing the business is led by someone competent and dedicated. Thus, showcasing positive character as you communicate and transact with your lender boosts your chances of loan approval.

Tip #4: Compare Business Loans

As a loan applicant, you should know which lenders offer the best business loan interest rates and terms and the fastest approval and processing.  

Consider different funding sources depending on your business's needs. For instance, banks offer larger loan amounts, longer repayment terms, and more competitive interest rates. 

Meanwhile, government loans are ideal for small and midsize enterprises. They usually offer non-collateral loans with lower interest rates and longer repayment terms.  

For smaller amounts and urgent purposes, you can also consider small business loans or those with instant approval. You have options for both collateral and non-collateral loans for these types of loans. 

Next, compare your options. The best banks for business loans in the Philippines offer lines of credit, term loans, or commercial real estate loans. Use the business loan calculator banks usually have on their websites, so you can see how much your business loan will cost. 

If you go with the option that aligns with your needs and capabilities, you have a higher chance of getting approved. 

Read more: 

• Need a Small Business Loan? DTI Offers Several Options
• Heads Up, Ka-Negosyo: Here’s How to Get a BPI Business Loan
• Starting a Business? Here’s Your Guide to Esquire Financing Business Loan
• Crowdfunding 101: What It is, Platforms in the Philippines, and More

Tip #5: Complete Your Business Loan Requirements

The last business loan tip on this list is to make sure you submit a complete set of requirements. Although they vary depending on the lender and purpose, these are the most common business loan requirements:

• Two valid IDs
• Marriage contract (if applicable)
• Photocopy of audited financial statements for the last three years
• Income Tax Returns (ITRs) for the last three years
• Bank statements or photocopy of passbook for the last six months
• Company Profile
• For sole proprietorships:
  • Certificate of Business Registration from DTI
• For partnerships:
  • Certificate of Registration from SEC
  • Articles of Partnership
• For corporations:
  • Certificate of Registration from SEC
  • Latest amended Articles of Incorporation and By-Laws
  • List of elected officers
  • Board Resolution or Secretary's Certificate

You should already have most, if not all, of the requirements listed above. The only thing you have to do is compile these records. 

However, note that a complete set of documents does not fully guarantee that your application will be approved.

Final Thoughts

Now that you understand how lenders evaluate and approve applications, make sure to follow the business loan tips above. 

Take the necessary steps to highlight your business's ability to repay your loan. Your financials significantly impact others' perceptions of your business, so practice due diligence to maintain a complete and accurate record. 

As a business owner, you carry your company's name wherever you go. Showing lenders what type of leader you are can make or break your business loan approval.

Sources:

• ^[1] Debt-to-Income (DTI) Ratio: What's Good and How To Calculate It (Investopedia, 2024)
• ^[2] Can Your Personal Credit Score Affect Your Small Business? (Lending Tree, 2023)