The MSME sector in the Philippines has proved its incredible resilience amid COVID-19 and its devastating economic consequences.

These businesses play an integral role in providing employment opportunities and helping to industrialize rural areas (accounts for 63% of employment in the Philippine workforce).

Because of its growth, local MSMEs have inspired a new batch of emerging entrepreneurs who also want to make a mark. However, starting a business requires resources. For budding entrepreneurs who do not have access to capital, this can pose a challenge.

When it comes to financial systems in the country, there is no question that banks dominate the field. But in a survey we conducted, a whopping 79.8% of respondents didn’t borrow money from banks or financial institutions in the last 12 months.

However, obtaining a microloan from a bank to start your business is surprisingly easier than you think.

Doing this  is recommended instead of turning to loan sharks that charge exorbitant fees. In this guide, we’ll let you in on the best microloan options for emerging MSME owners like you.

What is a Microloan?

Microloans are small financial aids that are customized for individual borrowers. These loans are usually used to expand or develop small businesses, improve working capital, and help solve the financial needs of micro, small, and medium enterprises.

Microloans are geared towards specific groups such as minorities, veterans, women, and other people who face barriers in accessing traditional bank loans.

9 Common Reasons Why Business Owners Take Out a Loan

Here are some reasons why business owners need to take out a loan.

1. Purchase real estate and expand operations 

This is one of the most common reasons why MSME owners take out a loan. Banks are more likely to serve established businesses that want to buy real estate so they can expand their operations.

This usually happens when a business is already making a profit and has a steady cash flow, as well as positive forecasted growth.

2. Get new equipment

Starting a business can be costly. You have to get equipment, supplies, and other business essentials before even opening your doors.

If your business is just starting, you need to invest in some basic equipment like cash registers, furniture, and other office materials.

In the same way, scaling a business also requires funds. This is why most business owners opt to take out loans to finance their new equipment and technologies.

3. Purchase inventory

MSMEs need to replenish inventory to run their business. You’ll have to purchase raw materials, food supplies, and even the inventory of your own products.

But like buying equipment and supplies, buying inventory can also lead to a decline in cash flow.

Instead of waiting for your cash flow to recover, it is more practical to take out a loan. This way, you get new inventory that your business needs to run.

4. Avoid cash-flow issues

Business owners don’t enjoy losing money. Starting a business can drain your source of income, and it is possible to face cash-flow issues before your business can even generate profit.

This is why some business owners take out loans to avoid losses. If you keep your cash flow going, you can help your business grow.

5. Build a good credit profile

Having to take out a loan will help you establish a good credit profile since it requires you to pass the scrutiny of banks and financial institutions.

When you are able to pay back your loan, you can build a good credit score which is immensely needed for taking out larger loans in the future.

6. Save money

And unlike equity financing, a microloan won’t require you to give away your business shares in return for money.

It’s also generally easier to get a loan, and the interest rates are much lower than equity financing.

7. Take advantage of new business opportunities

While it’s always a good idea to grow your business and take advantage of opportunities, it can also be risky and challenging.

Taking out loans can enable MSME owners to not only spot, but also join the ride of emerging trends and business opportunities.

8. Establish an emergency fund

An emergency fund is an important consideration for MSME owners that want to avoid business interruptions.

This fund can be used for any unforeseen expenses such as sudden repairs of equipment, and unexpected problems that can shut down your business.

9. Keep an ownership stake in the company

While it’s possible to sell your company shares in exchange for money to fund operations, this also means giving out your ownership.

One of the perks of taking out a microloan is owners get to keep a significant part of their business.

Related Guide: 7 Things SMEs Need to Overcome Growing Pains

Best Microloans for MSMEs in the Philippines

Here are the top microloan choices for MSMEs in the country.

Landbank General/Small & Medium Enterprises Loans

Through the years, Landbank has helped thousands of entrepreneurs through its various lending programs.

Thanks to its presence in all Philippine provinces, budding and existing MSME owners can readily access its offers, such as General/Small & Medium Enterprises Loans which include:

  • Term loan
  • Working Capital and Liquidity Support Facilities
    • Short Term Loan Line
    • Import/Domestic Letter of Credit (LC) / Trust Receipt (TR) Line
    • Domestic Standby LC Line
  • Domestic Bills Purchase Line
  • Exporters Production Support Facilities
    • Export Packing Credit Line
    • Export Bills Purchase Line
  • Farm Tourism Financing Program
  • OFW Reintegration Program
  • Innovation and Technology Lending Program
  • I-Rescue Lending Program
  • I-Rescue Bus Lending Program
  • Speed PUV Loan Program
  • PFI-Accord
  • Lending program for Former Rebels
  • Franchising Lending Program
  • Emerging FILIPINA Lending Program

Maximum loanable amount: depends on the type of loan

How to apply: 

  1. Check specific requirements and eligibility for the loan you’re applying for on this page.
  2. Visit a Landbank branch in your area.

SeedIn Philippines

Considered the largest business financing platform in Southeast Asia, SeedIn aims to connect individuals with businesses looking for short-term investments.

Since it started operating in the country, SeedIn has funded a whopping P1 billion to over 180 projects and generated over P58 million in investor earnings.

With SeedIn, your loan can get approved in just 7 days. Because it is 100% focused on SME growth, they approve loans more than traditional financiers.

Maximum loanable amount: up to $2 million, over 3 to 12 months tenure

Requirements:

  • DTI Certificate (Sole Proprietor)
  • SEC Certificate with the latest General Information Sheet (GIS) (Corporations)
  • Audited Financial Statements (AFS) with Income Tax Returns (ITR) for the latest 1-3 years, stamped received by BIR
  • Latest Interim Financial Statements and/or management report (balance sheet and income statement of the current year)
  • Latest Accounts Receivable Ageing Report
  • Latest 6 months statement of account for all corporate bank accounts (online bank statements or passbooks “must include account name and number”)
  • Valid ID of company President w/ specimen signature/s
  • List of Outstanding Loans & Statement of Collaterals
  • SALN Details
  • Business Continuity Plan (BCP)
  • Board Resolution (loan amount should be indicated)

How to apply:

  1. Download SeenIn on your mobile app, and register.
  2. Register your funding request.
  3. Submit requirements.
  4. Wait for a representative to email you to negotiate the funding and clarify the next steps.

Pondo sa Pagbabago at Pagasenso (P3)

Most MSMEs are still recovering from the impact brought about by COVID-19. The Pondo sa Bagbabago at Pagasenso is a loan program from the Small Business Corporation and DTI.

Its goal is to provide an alternative fund source for MSMEs that borrow money from expensive informal lenders.

Maximum loanable amount:

  • P5,000 to P200,000 (for those with an asset size not more than P3 million)
  • P500,000 (for those with an asset size not more than P15 million)

Eligibility:

Self-employed or micro-entrepreneurs with an active business of at least one year. The requirements include:

  • Government ID
  • Barangay clearance
  • Proof of business activity (1 year)
  • Certificates from the local government
  • Proof of 1-year residence

Other requirements:

  • Barangay and Municipal Business Permit
  • DTI Business name registration (for loans exceeding P50,000)
  • Photocopy of government-issued ID
  • ID picture

How to apply:

  1. Create an account here, or visit a DTI and SB Corp partner financial institution.
  2. Submit the required documents.
  3. Wait for authorized personnel to get in touch with you to discuss your application. Submit additional information and documents.

COVID-19 Assistance to Restart Enterprises (CARES) Program

CARES Program was launched to extend a helping hand to MSMEs economically affected by the pandemic. Recently, a CARES 2 program was also initiated by the government as a follow-up on the initial 2020 program.

Originally, CARES had a P1 billion fund for enterprises. Now, the Bayanihan 2 Bill has allocated P10 billion in additional funds for this program. This zero-interest loan has a grace period of 6 months, and payment terms of up to 24 months.

Maximum loanable amount:

  • P10,000 to P200,000 (for those with an asset size not more than P3 million)
  • P500,000 (for those with an asset size not more than P15 million)

Eligibility:

  • Filipino-owned micro, small, and medium enterprise
  • Business should be 1 year active before March 2020
  • Affected due to community quarantine
  • Has an asset not exceeding P100 million

How to apply:

  1. Create an account here, or call CARES Hotline at 8651-3333, and at 1-800-10-651-3333 (nationwide toll-free).
  2. Submit the required documents.
  3. Wait for authorized personnel to get in touch with you to discuss your application, and request additional information and documents.

Helping the Economy Recover through OFW Enterprise Startups (HEROES) Program

Overseas Filipino Workers who were repatriated from their work country can apply for this loan if they are in need of assistance.

This can support them to do something after losing their jobs such as start a new business upon returning to the country for good. The HEROES program loan does not require collateral, and it is also interest-free.

Maximum loanable amount: Php100,000

Eligibility:

  • Land-based OFW who returned to the Philippines due to layoffs caused by COVID-19
  • Non-professional OFW who returned to the Philippines due to layoffs caused by COVID-19

Requirements:

  • 1 government-issued ID with a photo
  • Completed loan application form
  • DTI registration
  • OWWA Certification or confirming repatriation of an OFW
  • AVP Business Plan
  • Certificate of completion for an online training session for start-ups from PTTC

For loans of P10,000 to P50,000, here are the additional requirements:

  • Business business pitch
  • DTI registration

For loans of P50,000 to P100,000, here are the additional requirements:

  • Business business pitch
  • DTI registration
  • SEC Registration
  • Municipal/Mayor’s business permit

How to apply for this loan:

  1. Register your application using this link.
  2. Make sure all the information is complete.
  3. Attend the Philippine Trade and Training Center (PTTC) 3-day online training. This is free.
  4. Prepare additional requirements.
  5. Wait for your application to be approved.

MSME Credit Guarantee Program (MCGP)

The goal of MCGP is to increase the availability of credit from the banking sector and to jumpstart MSMEs by providing them with much-needed working capital.

Eligible borrowers are MSMEs affected by COVID-19, and eligible lenders are banks with a CAMELS rating of at least 3 and non-bank financial institutions supervised by the Bangko Sentral ng Pilipinas.

Maximum loanable amount:

  • P50 million
  • Loans over P50 million may be accepted on a case-to-case basis. This will be subject to PHILGUARANTEE’s regular credit guarantee program guidelines.

How to apply for this loan:

  1. Visit any of the banks or financial institutions accredited by PHILGUARANTEE.
  2. Submit your application form and requirements.
  3. Wait for your loan to be approved.

HomeCredit Cash Loan

Thanks to HomeCredit, you can get a loan without leaving the comfort of your home. HomeCredit Cash Loan can help you start a new business or expand an existing one.

With this loan, you can benefit from low monthly installments. There are also no hidden charges, and approval can take as short as 1 minute.

Maximum loanable amount: P150,000

How to apply for this loan:

  1. Download the My Home Credit App.
  2. Click “Apply now” in the Cash Loan banner.
  3. Choose the amount and term of your loan.
  4. Verify your mobile number and provide other information.
  5. Submit your application and get your 2 IDs ready.
  6. Track the status of your loan on the home screen of the app.
  7. Once approved, sign the contract.
  8. Claim your money through bank transfer or pick up. The contract will be canceled if not claimed within 7 days.

Tonik Bank Loans

This digital bank is revolutionizing financial transactions in Southeast Asia by providing high-yield savings interest rates, and accessible lending opportunities.

With the Tonik Credit Builder Loan, individuals, including MSME and small/micro business owners, can establish and build their credit history.

Maximum loanable amount: P20,000

Eligibility:

  • Filipino citizens residing in the Philippines
  • Must be 23 to 58 years old
  • Presently Employed
  • Have a valid TIN and valid ID

How to apply:

  1. Download the Tonik App.
  2. Register for an account.
  3. On the dashboard, select “Loans.” Then, click “Quick Loan.”
  4. Choose the loan amount and installment period, from 6 to 24 months.
  5. Wait for your loan to get approved.

Kiva.org Philippines

Kiva’s vision is simple: to have a world where everyone has the power to improve their life. Kiva crowdfunds interest-free loans in increments of $25 or more per lender to unlock capital for underserved people, including MSMEs.

Kiva is operating in 77 countries and is serving 4.4 million borrowers, and 2.1 million lenders. Over $1.75 billion worth of loans has been funded through this platform. When you borrow through Kiva, your MSME can also enjoy free marketing through the Kiva site.

Maximum loanable amount: up to $10,000

How to apply:

  1. Create an account.
  2. Wait for your loan to be approved.

Note: You can also look for a Kiva Field Partner in your community to help you process your loan. Most Field Partners are microfinance institutions, schools, social enterprises, or NGOs.