Thinking about starting a lending business in the Philippines can be a smart way to earn money while helping others fill their financial gap.
The first step is to secure proper licensing and registration to comply with the country's regulations. Hiring a small team for tasks like bookkeeping and loan processing can also be a strategic move, although you can do this solo when you're just starting out.
Are you excited to dive into this opportunity? Let's take a look at the process.
Understand the basics of a lending business
A lending business is where you provide loans to people or businesses and earn money through interest.
It's like being your own bank, but...not exactly.
In the Philippines, starting an informal or formal loan business is popular among aspiring entrepreneurs and SMEs who have the capital.
Types of lending business
Conduct market analysis
Starting this kind of business is no joke! The next step to success is conducting a solid market analysis. You need to understand the lending industry to it's fullest.
Identify your target market
Knowing who's in need of loans helps tailor your services.
Are you helping small businesses, young entrepreneurs, or the everyday Juan? Categorize your target market by their needs.
Analyze the lending industry and your competition
Get the chismis on competitors. Study what they offer, how they price their loans, and their marketing tactics. Identify what makes them a competitor or available opportunity for you.
Note: If you're an informal lender, it might be hard to know who your competitors are. Informal lenders usually don't advertise and gains more customers through word-of-mouth or referrals.
Use probabilistic methods
Use credit scoring methods that rely on numbers and stats. Collect data on potential borrowers to predict who’s likely to repay loans on time.
PRO TIP: Small-scale lenders usually don't have credit scoring methods and would often rely on tiwala (trust) and hiya (shame) system.
Regulatory Environment
Check legal requirements and rules that apply to lending operations. In the Philippines, this includes understanding the Securities and Exchange Commission (SEC) and other legalities.
Economic Trends
Keep an eye on financial factors like interest rates, inflation, and economic growth. They can affect your business.
Develop a comprehensive business plan
When starting a business venture, a business plan is almost always important - but do you really need to write one?
Do you even need a business plan?
Creating a business plan is important when starting a money lending business. It’s like having a recipe when you cook—it keeps you on track and helps you manage risks.
Note: If you only plan to be an informal lender, where you'll give out loans to friends and acquaintances, a business plan might not be necessary.
If you do decide to write a business plan, here are key points to consider:
Mission & Vision
First, write down your business's mission and vision.
Think of this as the heart and soul of your company. It will guide everything you do, from lending policies to customer service.
Business Objectives and Goals
Next up, set clear business objectives and goals.
What do you want to achieve in the first year? More and more Filipinos are turning to alternative lending, so there's a big opportunity here.
But, you should have specific targets about how many clients you want or how much revenue you aim for.
And this will depend on how much money you can lend so be mindful of that as well.
Financial Projections
Mastering the art of budgeting is a bit like balancing on a tightrope.
You’ll need financial projections and a good cash flow projection. It’s important to estimate how money will move in and out of your business.
Proper planning here lets you see where funds are lacking or overflowing (hopefully not too often!).
Marketing Plan
Your marketing plan is your spotlight.
Decide how you’ll attract clients—social media, word of mouth, or maybe even a clever jingle! Understand your target market and know how to speak to them in a way they’ll appreciate and find useful.
Operations Plan
Finally, create an operations plan outlining how things run day-to-day.
This is your playbook for staff, technology, and customer processes. Write your Standard Operating Procedures (SOPs) as simply as possible.
Finally, use spreadsheets to track disbursed money and repayments.
Obtain the necessary licenses and permits (register your business)
You'll need to do the following steps in order to become a legal entity:
To start a loans business in the Philippines, your first step is to register your company with the Securities and Exchange Commission (SEC). This is where your business gets its official identity. Think of it as the birth certificate for your negosyo!
Prepare the Articles of Incorporation. It's like your company's CV, showing off your business's mission and vision. Include the list of incorporators, the shares each has, and other legal items.
Next, make sure you have at least one million pesos as paid-up capital. This is a law under the Lending Company Regulation Act of 2007.
Apply for a Certificate of Authority from the SEC. Double-check that you comply with anti-money laundering regulations while you're at it.
Afterward, don’t forget to get a business permit from your local government unit (Mayor's Permit, Barangay Business Clearance, etc). This permit is key for legally operating within your chosen area.
You'll also need a Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR). Your business needs this TIN to pay taxes (yes, taxes are as sure as a Filipino fiesta on a holiday!).
Finally, establish your company as a stock corporation. This means sharing stock certificates with investors, who could become business partners or stakeholders.
Here's a quick summary:
PRO TIP: The business registration process can be tedious. For those who don't have the time (or patience), try business registration assistance services.
Set up your operations
To begin setting up your operations, organize your loan origination process. This is where you figure out how to approve and disburse loans.
Loan approval and disbursement steps:
Offering online loans can be a game changer to your business' growth.
Set up a website if possible, to allow for loans online. It’s like having an online tindahan but for loans. Alternatively, a Facebook page will do.
PRO TIPS! Here's how to streamline your business:
Attract potential investors (optional) and borrowers
To attract potential investors and borrowers, you must focus on establishing a strong, trusted brand.
Create a website and social media profiles
A professional website complete with testimonials and FAQs can build trust with your audience. It's like having a digital business card.
You should also have some sort of social media presence. Facebook is very popular here in the Philippines, so prioritize that.
Create a short video or infographic highlighting your business’s strengths and unique offerings. This will help set you apart from your competitors.
Offer competitive interest rates or easy KYC (Know-Your-Customer) policies.
Provide a clear value proposition by offering competitive interest rates, swift loan processing, and personalized financial solutions. Borrowers are likely to flock to a business that assures transparency and fairness in services.
Some of your potential customers will be those who aren't able to obtain loans from GCash or Maya due to the stringent KYC process.
It's not because they're shady people, they just don't have the necessary spending amount in the platforms, belong to the informal economy, or simply don't trust the technology.
You can tap this underserved market by offering an easier loan application process.
Hold webinars, workshops, and networking events to generate interest.
Free snacks are optional, but they never hurt! Always ensure your ads and promotions highlight how your lending service can meet their needs.
Webinars and face-to-face workshops (this works great for micropreneurs) are also great ways to build relationships with potential investors. Attend finance events and networking gatherings to meet lending investors.
Share your lending successes and let them know why investing in your venture is worthwhile. Remember, understanding their interests and goals is a key factor to your success.
Pro Tip: Finding investors is optional. It's one way to grow your business quickly, but it can also mean giving up control over certain aspects of your business. Consider the pros and cons of having investors in your business before you open it to additional capital infusion.
Satisfy regulatory and legal requirements
Starting a borrowing business in the Philippines isn't just about understanding money. It's also about getting the legal side right! Let’s make sure you’re on top of everything.
Launch and grow your loans business
For continuous growth, identify areas that need improvement.
Consider online lending
Use feedback from clients to make tweaks to your services. Adding services such as online lending can open up new opportunities. There’s a big market for fast and easy online loans, especially among tech-savvy Filipinos.
Use technology to stay on top of your business
Consider using software to efficiently manage loans and track finances. This could save you time and effort, allowing you to focus on strategy rather than paperwork.
Think about scaling
As your business stabilizes, think about how to scale. Partner with financial institutions or tech platforms to offer new services. You can add educational seminars or financial advice as value-added services.
This not only builds customer loyalty but also differentiates your business.
Start a lending business today, and your success is just around the corner!
The process to starting a loans business in the Philippines might be tedious and capital intensive but it is a profitable venture nonetheless.
Ensure that you're on the legal side of things and your success is just around the corner!
