Q. Which institutions can give easy credit to small start-ups?
A: Banks are not famous for lending to small business—much less to start-ups with no credit history. Anyway, try the Development Bank of the Philippines, Landbank and Plantersbank. They’re touted to be the SME-friendliest banks around.
A promising source is micro finance institutions if you fall under the micro category. There is a micro finance lender in every town or city of the Philippines. However, MFIs do not start lending in big amounts. The amount one can borrow gradually increases as the micro enterprise builds up a good repayment record.
Many small businesses begin with the owners dilpping into their own resources — their savings, their assets which they may possibly sell or mortgage, or through “soft” loans from family, relatives and friends.
You can raise funds from partners (if you are into a partnership business) or from incorporators for corporations.
If you have accumulated a history of performance even if you are small, you can try credit facilities of the government.
The Department of Trade and Industry has a SULONG program (acronym for SME Unified Lending Opportunities for National Growth) which puts together all government financing programs for SMES (although most of the programs would also require a history of good performance). These include the programs of:
- Development Bank of the Philippines (DBP)
- Land Bank of the Philippines (LBP)
- National Livelihood Support Fund (NLSF)
- Small Business Corporation (SB Corp.)
- Philippine Export-Import Credit Agency (PHILEXIM)
- Quedan and Rural Credit Guarantee Corporation (QUEDANCOR)
Based on their informational materials, the SULONG programs will not decline a loan only on the basis of inadequate collateral. However, the borrower must be willing to mortgage any available business and personal collateral, including assets to be acquired from the loan, to secure the borrowing. Among acceptable collaterals are postdated checks, registered/unregistered real estate mortgage (REM)/chattel mortgage (CHM), or the assignment of life insurance. For franchisees, the following may be considered: corporate guarantee and assignment of lease rights. For export packing credit, a borrower may assign his letter of credit (LC)/PO or sales invoice.
To qualify, a borrower must show positive income for the preceding year. Otherwise, average income for the last two ore three years may be considered. Debt-equity ratio must be 80:20
For short-term loans, the program can fund up to 70% of the value of the LC/PO (export packing), or 70% of working capital requirement (temporary working capital); maximum of P 5 million. For long-term loans, 80% of the incremental project cost, maximum of P5 million.
Repayment term for short-term loans is a maximum of one year. For long-term loan, repayment is up to five years, inclusive of a maximum of one year grace period on principal monthly amortization.
For short-term loans, the entrepreneur may tap the program either for export financing (export packing credit) or a credit line for temporary working capital. For long-term loans, small and medium enterprises (SMEs) may apply for loans for permanent working capital, or to purchase equipment, a lot, or to construct a building/warehouse.
Alternatively, try the Technology and Livelihood Resource Center and the Department of Science and Technology. They offer programs for technology-based small businesses.
Q. What other institutions can give assistance to start-ups?
If you mean entrepreneurial and managerial training, call us at the UP ISSI/SERDEF. We have “start-your-own-business” programs that tell you how to identify the business suited for you and plan for it.
If it’s product design and development help you need, visit the Department of Trade and Industry’s Product Development and Design Center.
If its technical assistance, you can approach the various agencies under the Department of Science and Technology like the Metal Industries Research and Development Center (MIRD, Industrial Technical Development Institute (ITDI), Forest Products Research and Development Institute (FPRDI), Food and Nutrition Research Institute (FNRI), Philippine Textile Research Institute (PTRI), Philippine Council for Aquatic and Marine Research and Development (PCAMRD), and Philippine Council for Agriculture, Forestry and Natural Resources Research and Development (PCARRD).
If you’re into livestock raising, the Department of Agriculture’s Bureau of Animal Industries should be able to help. If you’re a farmer, you may wish to approach the Bureau of Plant Industry.
Q: How do I recruit good people when I can’t afford high salaries?
A: Many small businesses recruit fresh graduates from the good schools. Of course, you’ll have to train them to be productive, but take heart: some of these graduates are idealistic young people who prefer to work in a cozy “family setting,” preferring it to the impersonality of the multinational work environment. In lieu of fat salaries, try offering incentives like free food, coffee and lodging, and plenty of smiles and pats on the back. And look into a possible employee stock-option plan.
Q: How do I minimize the risk of failure and boost my chances of success?
A: By doing a feasibility study or at least a market study of your business. By working hard and believing in yourself and your product. By being customer and improvement oriented. By being committed to the terms of whatever contract you sign. By systematic planning, monitoring, goal-setting, and networking. By praying hard.