How to Get a Small Business Loan in the Philippines

If you’re running a small or medium business in the Philippines, securing the right loan can make all the difference in scaling operations or meeting urgent expenses. Despite the banking sector’s loan portfolio reaching ₱10.8 trillion as of mid-2024, only 4.52%, about ₱488.13 billion, actually goes to micro, small, and medium enterprises (MSMEs), according to Bangko Sentral ng Pilipinas. This means SMBs face tough competition for funding, as banks consistently fall short of the 10% MSME lending quota mandated by law. 

In this article, you’ll get clear, actionable guidance on small business loans: what lenders look for, available loan types, how to prepare your application, and tips to improve your chances of approval.

TL;DR

• Small business loans help SMEs fund growth, manage operations, or bridge cash flow gaps.
• Only 4.52% of total bank loans in the Philippines go to MSMEs—access remains limited.
• Loan types include term loans, credit lines, secured and unsecured loans, and startup financing.
• Approval depends on documentation, business health, and lender requirements.
• Government programs and alternative lenders offer flexible options for MSMEs.

What is a Small Business Loan?

A small business loan is a financial product designed to help entrepreneurs fund the growth or operational needs of their business. These loans can be used for a variety of purposes, such as purchasing equipment, hiring staff, managing cash flow, or expanding operations. Typically offered by banks, financial institutions, and government programs, small business loans come with varying terms and conditions depending on the lender and the borrower’s creditworthiness. 

The loan amounts, interest rates, and repayment terms differ based on the type of loan and the specific needs of your business. Securing a small business loan is often a critical step for entrepreneurs looking to scale their operations or navigate financial hurdles.

Now that we’ve covered the basics, let’s explore the different loan types available in the Philippines, and which one fits your business needs.

Types of Small Business Loan

Getting the right loan can shape the future of your business. Here’s a detailed look at major small business loan types available in the Philippines—so you can make a confident, informed choice:

1. Term Loan

A term loan is a traditional financing option where you borrow a lump sum and repay it in fixed installments over an agreed period.

• Purpose: Expansion, equipment purchase, inventory, large investments.
• Loan Amount: Ranges from ₱100,000 to ₱20 million or more, depending on lender and business profile.
• Terms: Typically 1 to 7 years; some lenders offer up to 10 years for bigger loans.
• Interest Rates: Vary by lender, business creditworthiness, and loan term. Expect both fixed and variable rate options.
• Features:
  
  • Predictable repayment schedule, ideal for planning.
  • May require collateral for larger amounts.
  • Documentation: Financial statements, business permits, tax returns, project proposals, and sometimes collateral documents.
• Best For: Established businesses with stable revenue seeking sizable funding for planned projects.

2. Credit Line

A credit line offers flexible access to funds, you’re given a credit limit and can withdraw any amount as needed, repaying only what you use. This is handy for managing irregular cash flow, bridging shortfalls, or smoothing out seasonal dips in your business. You pay interest only on the balance you actually use, not the whole approved line.

• Purpose: Managing working capital, bridging short-term cash gaps, purchasing inventory.
• Loan Amount: Varies, often between ₱50,000 to ₱20 million.
• Terms: Usually renewable annually; repayments replenish available credit.
• Interest Rates: Interest applies only to the amount drawn, not the total approved limit.
• Features:
  
  • Pay interest only on what you use.
  • Withdraw funds repeatedly within your credit limit.
  • Quick access to cash, great for emergencies or seasonal needs.
  • Requires renewal or periodic review by the lender.
• Best For: Businesses with fluctuating cash flow or requiring regular access to short-term funds.

3. Secured Loan

A secured loan means pledging business or personal assets (like real estate, equipment, or inventory) to get loan approval. By offering collateral, you often qualify for bigger amounts, lower interest, and longer repayment terms. This option works best for businesses investing in big projects or needing long-term capital.

• Purpose: Large capital expenditures, expansion, or long-term investments.
• Loan Amount: Can be substantial, depends on collateral value and business profile.
• Terms: Generally offers longer repayment periods and larger amounts than unsecured loans.
• Interest Rates: Lower, due to reduced lender risk.
• Collateral: Common examples include property, vehicles, inventory, or business receivables.
• Features:
  
  • Collateral-backed—lender may claim the asset in case of default
  • Lower interest rates compared to unsecured loans
  • Longer repayment periods and higher loan amounts
  • Used for expansion, capital expenditures, or large investments
  • Requires comprehensive documentation, such as property titles or asset papers
• Best For: Businesses with significant assets or those seeking the best possible rates and terms.

4. Unsecured Loan

An unsecured loan doesn’t require any collateral; instead, lenders look at your credit history, cash flow, and business performance. This is a quick option if you don’t have assets to pledge and need working capital or funds to seize business opportunities. Approval hinges on your creditworthiness and consistency of revenue.

• Purpose: Working capital, operating expenses, short-term growth opportunities.
• Loan Amount: Usually smaller, ranging from ₱50,000 to ₱5 million.
• Terms: 6 months to 3 years is typical.
• Interest Rates: Slightly higher than secured loans due to greater lender risk.
• Requirements: Strong credit history, established operating record, reliable revenue streams.
• Features:
  
  • No asset or property pledged
  • Faster approval and minimal documentation.
  • Best for businesses lacking sizeable assets.
  • Penalties for late or missed payments may be stricter.
• Best For: Small businesses needing fast, collateral-free financing with consistent cash flow.

5. Startup Loans (New Business Loan)

Startup loans are specially designed for new businesses or entrepreneurs with little to no operating history. These loans help cover initial expenses—like product development, staff hiring, or launching a new operation. Approval often depends on a solid business plan and clear market potential, rather than track record.

• Purpose: Seed capital, product development, launching new operations, early-stage growth.
• Loan Amount: Usually small, ranging from ₱50,000 to ₱5 million, but varies by lender and program.
• Terms: Short- to mid-term, usually 1 to 3 years.
• Interest Rates: Vary widely; government or fintech programs may offer better rates and support.
• Features:
  
  • Offered mainly by government agencies, microfinance institutions, and some fintechs
  • May include additional support, like business training or mentorship
  • Application requires a detailed business plan and projected financials
  • Looser operational requirements but expect more checks on your idea and planning
• Best For: New entrepreneurs or those launching a fresh business concept with high growth potential or social impact.

Choosing the right loan is about matching your business needs, current capabilities, and long-term plans with the products offered by lenders. Weigh the pros and cons of each type before deciding, and always check for special programs offered by government and reputable non-bank lenders to get the best terms for your business.

Let’s address your queries with a 15-minute discovery call with lending experts. 

Got a loan in mind? Here’s what the application journey looks like from start to finish.

What is the Application Process for a Small Business Loan?

Securing a small business loan in the Philippines demands careful preparation and a methodical approach. Here’s a comprehensive guide to each step, so you can confidently work through the application and improve your odds of approval.

1. Assess Your Financing Needs

• Define the purpose of the loan: Are you seeking funds for expansion, buying inventory, managing cash flow, or acquiring equipment?
• Calculate the exact amount you need. Requesting either too much or too little can affect your approval chances.
• Decide on preferred repayment terms and identify any flexibility you may need for your business.

2. Check Eligibility Criteria

• Review the lender’s minimum requirements. Most require your business to be legally registered with the Department of Trade and Industry (DTI), Securities and Exchange Commission (SEC), or Cooperative Development Authority (CDA).
• Confirm your business’s minimum operating period (some require at least 1-2 years in operation).
• Take note of any revenue or asset thresholds the lender sets.
• Ensure you have updated permits, licenses, and are tax compliant.

3. Prepare the Required Documents

Lenders typically ask for:

• Government-issued identification (for owners and authorized signatories)
• Mayor’s permit and barangay clearance
• DTI or SEC registration certificates
• Audited or latest financial statements
• Latest Income Tax Returns (ITR) and Business Tax Returns
• Bank statements (last 3-6 months)
• Business plan or project proposal, if needed
• Collateral documents, if applicable (like land titles or deeds)

4. Research and Choose a Lender

• Evaluate your options: Commercial lenders, rural lenders, government agencies (like LandBank, DBP, SB Corp), and microfinance institutions each have their pros and cons.
• Compare interest rates, loan tenure, processing fees, collateral requirements, and customer feedback.
• Some lenders offer online application portals for faster processing.

5. Submit Your Loan Application

• Fill out application forms accurately, errors or omissions can delay processing.
• Submit all required documents, whether online or at a branch.
• For government programs, check if there are special grants, reduced interest loans, or pandemic relief funds.

6. Undergo Loan Evaluation and Credit Assessment

• The lender reviews your application, examines your financials, and assesses your business’ ability to repay.
• They may ask for clarifications, call you for an interview, or conduct a site visit.
• The evaluation period varies but can take anywhere from 3 days to several weeks, depending on the lender and complexity.

7. Review and Accept the Loan Offer

• Once approved, review the loan agreement closely—including the interest rate, repayment terms, processing charges, and penalties for late payment.
• Ask questions if anything is unclear before signing.

8. Loan Fund Release

• Upon acceptance, the lender will release funds directly to your business bank account or by check.
• Use the loan for the approved purpose—misuse can affect future borrowing opportunities.

9. Fulfill Repayment Obligations

• Begin repayments according to the agreed schedule.
• Most lenders offer online, over-the-counter, or automatic debit options for convenience.
• Maintain good repayment habits to strengthen your credit profile and unlock larger loans or better terms next time.

Let’s understand the application process with the below example:

Juan owns a sari-sari store in Quezon City and wants to expand by offering frozen food products. He calculates he needs ₱150,000 for new freezers and initial inventory. Juan checks that his business is DTI-registered, has been operating for three years, and his permits are current.

He gathers his IDs, business registration papers, latest ITR, bank statements, and a brief business plan outlining the new product line. Juan compares loan offers from a rural lender, a large commercial lender, and a government agency, choosing the rural lender for its lower rates and flexible terms.

After submitting the application, within two weeks, he receives approval. After reviewing and signing the agreement, the funds are transferred to his account. 

Even with all the right intentions, business owners often hit roadblocks. Let’s look at what makes approval tough, and how to push through.

Challenges Faced by SMEs in Securing a Loan and Solutions

Securing a loan can be a critical but challenging step for small business owners in the Philippines. While the need for financial support is often urgent, many entrepreneurs face several hurdles in navigating the loan application process. Understanding these challenges, along with strategies to overcome them, can significantly improve your chances of securing the funding you need. 

Common Hurdles Faced by Small Business Owners

1. Lack of Credit History: Many small businesses, especially startups, lack an established credit history, which is a key factor lenders consider when assessing loan applications. Without a proven track record, lenders may be reluctant to take on the risk.
2. Inadequate Documentation: Lenders require comprehensive documentation to assess the financial health of a business. Incomplete or poorly organized documents often lead to delays or rejection of loan applications.
3. Insufficient Collateral: Collateral acts as security for lenders. Small businesses often struggle to provide adequate collateral, especially if they don't own significant assets, limiting their chances of securing larger loans.
4. Poor Cash Flow: A healthy cash flow is vital for loan approval. Many small businesses face fluctuating or unpredictable cash flow, which raises concerns for lenders about the ability to repay the loan.
5. High Debt-to-Income Ratio: Lenders carefully evaluate your debt-to-income ratio. If your business already carries significant debt, it can raise red flags for lenders, making it difficult to secure additional financing.
6. Lack of Knowledge about Loan Options: The variety of loan options available to small businesses can be overwhelming. Without clear understanding, businesses might apply for loans that aren't suited to their needs, leading to rejections or unfavorable terms.

Strategies to Overcome These Challenges

1. Build Your Credit Profile: Start building a positive credit history by making timely payments on your existing debts, if any. Even if you're a new business, personal credit scores can be used as a reference until your business establishes its own.
2. Organize Your Financials: Keep your business’s financial records up-to-date and well-organized. Provide accurate and comprehensive financial statements, including tax returns, profit and loss reports, and balance sheets, to showcase your business’s financial health.
3. Consider Government-Backed Loans: Government programs like the DTI’s P3 loan are designed to help MSMEs with lower interest rates and easier qualification criteria. If you lack collateral, these programs can be a great option to secure funding without the usual requirements.
4. Improve Cash Flow Management: Work on improving your cash flow by reducing unnecessary expenses, invoicing promptly, and considering invoice factoring. Maintaining a stable cash flow demonstrates to lenders that you are capable of managing your finances responsibly.
5. Minimize Existing Debt: Before applying for a loan, try to reduce your existing debt. Lenders are more likely to approve a loan if they see that you are not over-leveraged and have the capacity to repay additional funds.
6. Research Loan Options: Take the time to research and understand different loan products. Choose the one that best fits your business needs, repayment capabilities, and long-term financial strategy. Government-backed loans or those offered by microfinance institutions may be more lenient in terms of collateral and credit history.

Rejection isn’t the end of the road. Here’s what you can do next to strengthen your case or explore new paths.

What to Do If Your Loan Application is Rejected?

1. Ask for Feedback: If your application is rejected, ask the lender for feedback. Understanding why your application was denied can help you address the issues before reapplying. It may be related to cash flow, collateral, or other factors that you can work on improving.
2. Strengthen Your Application: Based on the feedback, take steps to address the weak areas in your application. For example, you may need to improve your credit score, provide additional documentation, or adjust your business’s cash flow management.
3. Explore Alternative Lenders: If traditional banks reject your loan application, consider exploring alternative financing options such as microfinance institutions, peer-to-peer lending platforms, or crowdfunding. These lenders often have more flexible criteria, especially for small or newer businesses.
4. Consider Smaller Loan Amounts: If your business is unable to secure the full amount you need, try applying for a smaller loan that is within your current financial capabilities. This can be a stepping stone to building trust with lenders for larger amounts in the future.
5. Focus on Strengthening Your Business: Use the rejection as an opportunity to strengthen your business. Improving your financial records, stabilizing cash flow, and growing your customer base will increase your chances of approval in future applications.

Securing a loan may seem like a daunting task, but by understanding the common hurdles and preparing accordingly, you can increase your chances of success. 

With many loan options available, how do you choose the right one? Here's what you should weigh before signing anything.

Final Considerations When Choosing a Loan

Selecting the right loan is a crucial decision for your business. Beyond comparing interest rates and amounts, it pays to look at the full picture to ensure your financing truly benefits your operations.

• Assess Total Cost of Borrowing: Examine not just the interest rate, but also processing fees, insurance, penalties, and other hidden charges. A slightly higher rate with fewer fees may cost less overall than a loan with a lower advertised rate but high extra costs.
• Understand Repayment Terms: Scrutinize the repayment schedule, grace periods, and any prepayment penalties. Choose terms that match your cash flow cycle and business realities, flexibility can be as important as the rate itself.
• Check Lender’s Reputation: Research potential lenders through reviews and feedback from other business owners. Prioritize those with transparent policies, good customer support, and a track record of dealing fairly with SMEs.
• Review Collateral Requirements: For secured loans, know what’s at stake if you default. Make sure you’re comfortable with the asset you pledge, and have a contingency plan in case you face repayment challenges.
• Future Borrowing Capacity: Consider how your choice will affect future financing. Timely repayments on a business loan can improve your credit profile, unlocking bigger loans or better terms later.

By weighing these factors carefully, you place your business in a position to grow responsibly and sustainably, minimizing risk and maximizing opportunity. Always take time to read the full loan agreement, ask questions, and seek expert advice if needed before committing.

If traditional lenders aren't meeting your needs, here’s how alternative providers like n90 are stepping in with practical solutions.

The Strategic Role of n90 in SME Lending

Finding a lender that aligns with your business's unique needs can be rewarding, especially when traditional options seem restrictive. For SMEs in the Philippines looking for tailored funding, n90 is one example of a financial partner that focuses on bridging real-world challenges faced by local business owners.

n90 specializes in customized lending solutions to help SMEs manage growth, cash flow, or sudden opportunities. Here’s how its main offerings work for businesses at different stages:

• Bridge Loans: Short-term funding to cover cash flow gaps or urgent business expenses while waiting for payments.
• Small Business Loans: Flexible financing used for expansion, inventory, or daily operations, structured for ease and access.
• Invoice Factoring: A reusable credit line that lets you turn unpaid invoices into immediate cash, boosting liquidity without new debt.

n90 provides financing across a range of business sizes:

• Annual revenue above ₱150 million: Access to up to ₱25 million in credit, with monthly rates below 1%.
• ₱15 million to ₱150 million in revenue: Credit limits between ₱1 million and ₱10 million, with monthly rates from 1.09% to 1.49%.
• Less than ₱15 million in revenue: Borrow up to ₱1.5 million, at 1.50% to 1.90% monthly rates.

By focusing on transparent processes, clear eligibility criteria, and rapid approval times, n90 aims to offer SMEs a practical alternative to traditional loans, helping SMEs move forward.

Conclusion

Securing the right small business loan can empower you to grow, manage challenges, and seize new opportunities in the Philippine market. By understanding your options, preparing thorough documentation, and choosing a lender aligned with your needs, you set your business on a path to sustainable success. 

If you’re looking for a funding partner who understands SME needs, explore how n90’s flexible lending solutions can support your next move. As an added benefit, n90 provides financial coaching support to new borrowers throughout the lending process, ensuring you’re well-equipped to make informed decisions at every stage. 

Get in touch with the experts at +63 962 663 1393, and get funded.

FAQs

1. Who can apply for a small business loan in the Philippines?

‍Any registered SME with a stable business model and proper documentation can apply, although specific eligibility varies by lender.

2. What documents are commonly required for loan applications?

‍Typically, lenders request valid IDs, business permits, financial statements, tax returns, and sometimes a business plan or collateral.

3. How long does loan approval usually take?

‍It depends on the lender, but it can range from a few days to several weeks, especially if additional checks or documents are needed.

4. What if I don’t have collateral to offer?

‍You can opt for unsecured loans or explore government-backed programs designed to support businesses without requiring assets.

5. How can I improve my chances of getting approved?

‍Maintain clean financial records, monitor cash flow, reduce existing debt, and tailor your loan application to your actual business needs.