Business SENIOR

HIGH
Finance SCHOOL

The Bank and Non-Bank Self-Learning

Module

Institutions as Sources of Funds 12

Quarter 3
Business Finance
Quarter 3 – Module 12: The Bank and Non-Bank Institutions as Sources of Funds
First Edition, 2020

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 Business SENIOR
HIGH

Finance SCHOOL

Self-Learning
Module

12
Quarter 3
The Bank and Non-Bank
Institutions as Sources of
Funds

Introductory Message
 For the Facilitator:

Welcome to the The Bank and Non-Bank Institutions as Sources of Funds!

This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character while taking into
consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the
body of the module:

Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their own learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.

For the Learner:

 Welcome to the Business Finance Self-Learning Module on The Bank and Non-
Bank Institutions as Sources of Funds!

This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.

This module has the following parts and corresponding icons:

Expectations - This points to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measures how much you have learned from the
entire module.
 EXPECTATIONS

At the end of this module, you are expected to:

1. identify the different sources of funds in the Philippines;
2. identify the 5C’s of credit and their applicability in loan approval; and
3. know the basic requirements and process for loan application.

PRETEST

Directions. On the space provided, write TRUE if the statement expressed is correct
and FALSE if it is expressed incorrectly.

__________ 1. Credit application is the first step in getting a loan.

__________ 2. Character and capacity are the most important C’s of the credit
decision.
__________ 3. All cooperatives in the Philippines are regulated and supervised by
the Cooperative Development Authority (CDA).
__________ 4. As compare to the bank loans, private lenders have a simpler
application process.
__________ 5. Credit cooperative is the same with cooperative banks.

RECAP

You learned from previous lessons the major challenge to start a business is
the money seed or capital to start-up a business. What are the two types of financing
that respond to this issue?
 LESSON

The most common Sources of Funds

• Bank is an establishment for the deposit, custody, and issue of money, for making
loans and discounts, and or making the exchange of funds. These under the
supervision and regulated by the Bangko Sentral ng Pilipinas (BSP). The Philippines
banking system is composed of universal and commercial banks represent the
largest single group that offer the widest variety of banking services among financial
institutions; thrift banks is composed of savings, and mortgage banks, private
development banks, stock savings bank, and loan associations and micro-finance
thrift bank; and rural and cooperative banks more popular in the rural
communities their role is to promote and expand the rural economy by providing
basic financial services and helping farmers from buying seedlings to the marketing
of their produce.

• Credit Cooperatives is a non-bank financial organization owned and controlled

by its members, who can borrow low’ interest rates from the amount of money they
saved as a group. Credit-cooperatives provide financial services to the poor and low-
income people in the countries. The primary objective is to help improve the quality
of life of its member. Aims to provide goods and services to its member to attain
increased income, savings, investments, productivity, and purchasing power. These
institutions attempt to differentiate themselves by offering above-average services
along with competitive rates in the areas of insurance, lending, and investment
dealings. In the Philippines, all cooperatives are regulated and supervised by the
Cooperative Development Authority (CDA). The BSP, in coordination with the CDA,
shall prescribe the appropriate prudential rules and regulations applicable to the
financial service cooperatives according to Republic Act No. 9520 also known as
“Philippine Cooperative Code of 2008,”
• Commercial finance companies are a non-bank organization that provides loans
to individuals and businesses for the purchase of inventory and equipment. To
secured a business loan the borrower is required to pledges any assets used in the
conduct of the business as collateral. Also called asset-based lending or asset-based
finance.
Other sources of funds
• Credit Cards are issued by a financial institution that allows the cardholder to
borrow money to purchase with an assigned credit limit of a specific amount during
a given period. Just take note of the high-interest rates on this source of funds.
• Pawnshops provides funds in-exchange for collateral, usually jewelery, or other
items with value famous word “sangla”. Allows quick access to money to every
Filipinos who get through “petsa de peligro”, need additional capital for a small
business, and financial emergencies in the family.
• Informal lending sources ( “Five-six”) extend loans without collateral or any
documentary requirements but charge the borrowers an exorbitant nominal interest
rate of 20 percent or more over an agreed period.
Loan Application Requirements

Bank, credit cooperatives, and commercial finance companies a credit application is

the first step in getting a loan. Some information required are:

1. Demographic includes the name (or business name), birth date, current and
previous address, social security number, taxpayer’s identification number, phone
number, and other personal identification information such as valid government-
issued identification cards.

2. Income or revenue refers to current personal income or employer, employment,

and salary history, and business revenue for those whose have an existing business.

3. Assets and liabilities may be asked to disclose their checking savings and
investment accounts and their outstanding loans and credit cards. For those with
existing businesses may require financial statements and business registration.

4. Contacts and references requiring the identification and contact information of

existing employers, previous employers, or even nearest relative not living with the
applicant (personal loan).

5. Attest and authorization letter affixing the applicant’s signature on the credit
application stating that all application information is true and correct and
authorizing the lender to verify the information provided with identified contacts and
references.

Providing the above information or requirements is not a guarantee to approve the

loan applications. Several procedures will have to perform by the credit department
to evaluate loans application may vary depending on the lender. Most of the lender
use guide questions on five Cs of credit.

5C’s of Credit

1. Character is established based on the applicant’s commitment to repay previous

loans. Conduct interviews and evaluate the filled out loan application form, NBI
clearance, Police Clearance, etc.
2. Capacity is the applicant’s ability to pay debt based on income and other
obligations. By evaluating income documents such as a certificate of employment,
audited financial statements, income tax return, etc.
3. Collateral refers to an asset that secures the loan. They evaluate the value of the
asset and the authenticity of documents such a copy of the transfer certificate of
title (TCT) or condominium certificate of title (CCT), tax declaration, building plan,
etc.
4. Capital refers to the applicant’s financial resources. They evaluate the
statement of assets and liabilities, audited financial statements, etc.
5. Condition refers to the current economic or business conditions of the applicant’s
business. Required to submit the latest news articles relating to the company (if
listed), trends in the financial statements, business background or company profile,
etc.

Typical loan process involves the following

• Duly accomplished application form and required documents.

• Verification of information in the application form and required documents may
include interviews.
• Checking credit history.

• Writing credit report with appropriate recommendation.

• Documenting for final decisions.

If approved, final documents to be signed the contract with terms and conditions.
If rejected, a rejection letter will be sent to the applicant.

ACTIVITIES
Directions. Analyze the following statement below and match the correct C’s of
credit. Write the answer to the space provided before the number.

Capacity Collateral
Character
Capital Condition

_____________1. Check Joe’s Restaurant’s payment history and experience in the

business. The fruitfulness of the business proves Mr. Salazar and the
BOD’s ability to manage the business well.
_____________2. Has positive income from the business and positive cash flows
from operations. Current assets also show that the borrower has
funds easily available for repayment if necessary. The term of the
loan, should be adjusted to the cash flow of the borrower.
_____________3. The property pledged has a value greater than the loan to provide
the bank security for sudden changes in the value of the collateral, as
well as to compensate the bank for the collateral’s illiquid nature.
_____________4. The audited financial statements give a preview of the borrower’s
resources.
_____________5. The income statement shows that the business is earning and is
even growing. The business has already grown to 3 branches. This
shows a preview of the growth in the food industry.
 WRAP-UP

In this lesson, you learned:

1. What are the sources of funds?

2. What is the 5C’s of credit?
3. What are the basic requirements and processes in a loan application?

VALUING

1. Do you think it is important to secure the authenticity of documents and right

information in applying loans?
2. Is that right to have self-evaluation before deciding to get a loan?
 POSTTEST

Directions. Read the questions and encircle the letter of your answer.

1. A credit application is the first step in getting a loan. Some required

information like name of the business, government-issued i.d card, etc. refers
to
A. Demographic
B. Income or revenue
C. Assets and liabilities
D. Contract and references

2. Republic Act No. 9520 s also known as the

A. Philippine Cooperative Code of 2007
B. Philippine Cooperative Code of 2008
C. Philippine Cooperative Development Code of 2007
D. Philippine Cooperative Development Code of 2008

3. Which of the following sources of funds that closest to Filipinos when the due
date is coming or “petsa de peligro”?
A. Bank
B. Five six
C. Pawnshop
D. Credit card

4. Below are the typical loan processes, except one

A. Checking credit history
B. Duly accomplished the application form and required documents.
C. Writing credit reports with appropriate recommendation.
D. The application form must be paid before the applicant filled it up.

5. This is a financial institution that supervises and regulated by the Bangko

Sentral ng Pilipinas.
A. Bank
B. Pawnshop
C. Credit cooperatives
D. Commercial finance companies
 Activity
1. Character
2. Capacity
3. Collateral
4. Capital
5. Condition
Post-Test Pre-Test
1. A 1. TRUE
2. B 2. TRUE
3. C 3. TRUE
4. D 4. TRUE
5. A 5. FALSE
1. D
KEY TO CORRECTION
 References

Business Finance Teachers Guide

Florenz C. Tugas, Aeson Luiz C. Dela Cruz, Alloysius Jushua S. Paril, and Alger C.
Tang. Business Finance. Vibal Publishing
https://accountng-simpified.com>…
https://corporatefinanceinstitute.com
https://dictoinary.cambridge,org>
https://investinganswers.com
https://www.allbusiness.com>u….
https://www.extension.purdue.edu>…
https://www.investopedia.com>ask
https://www.investorwords.com>comm…
https://www.moneymax.ph/loans