12 SENIOR HIGH SCHOOL

BUSINESS FINANCE
Quarter 3 – Module 5
Loan Requirements of Bank
and Nonbank Institutions
Business Finance – Grade 12
Alternative Delivery Mode
Quarter 3 – Module 5: Loan Requirements of Bank and Nonbank Institutions
First Edition, 2020

Republic Act 8293, section 176 states that: No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for
exploitation of such work for profit. Such agency or office may, among other things,
impose as a condition the payment of royalties.

Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand

names, trademarks, etc.) included in this module are owned by their respective
copyright holders. Every effort has been exerted to locate and seek permission to
use these materials from their respective copyright owners. The publisher and
authors do not represent nor claim ownership over them.

Published by the Department of Education

Secretary: Leonor Magtolis Briones
Undersecretary: Diosdado M. San Antonio

Development Team of the Module

Writer: Gwen A. Galvez
Editor: Angelica G. Zambrano
Reviewer: Maria Acenith D. Pastor
Layout Artist: Bb. Boy Jonnel C. Diaz
Management Team: Senen Priscillo P. Paulin, CESO V Rosela R. Abiera
Fay C. Luarez, TM, EdD, PhD Maricel S. Rasid
Nilita L. Ragay, EdD Elmar L. Cabrera
Elisa L. Baguio, EdD

Printed in the Philippines by ________________________

Department of Education –Region VII Schools Division of Negros Oriental

Office Address: Kagawasan, Ave., Daro, Dumaguete City, Negros Oriental

Tele #: (035) 225 2376 / 541 1117
E-mail Address: negros.oriental@deped.gov.ph
 12

Business Finance
Quarter 3 – Module 5
Loan Requirements of Bank
and Nonbank Institutions
Introductory Message
For the facilitator:
Welcome to the Grade 12 Business Finance Alternative Delivery Mode (ADM)
Module on Loan Requirements of Bank and Nonbank Institutions!
This module was collaboratively designed, developed and reviewed by educators
both from public and private institutions to assist you, the teacher or facilitator
in helping the learners meet the standards set by the K to 12 Curriculum while
overcoming their personal, social, and economic constraints in schooling.
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills 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. Furthermore, you are expected to encourage and
assist the learners as they do the tasks included in the module.

2
For the learner:
Welcome to the Grade 12 Business Finance Alternative Delivery Mode (ADM)
Module on Loan Requirements of Bank and Nonbank Institutions!
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 resource while being an active
learner.
This module has the following parts and corresponding icons:
This will give you an idea of the skills or
What I Need to Know competencies you are expected to learn in
the module.

This part includes an activity that aims to

check what you already know about the
What I Know
lesson to take. If you get all the answers
correct (100%), you may decide to skip this
module.

This is a brief drill or review to help you link

What’s In the current lesson with the previous one.

In this portion, the new lesson will be

What’s New introduced to you in various ways; a story, a
song, a poem, a problem opener, an activity
or a situation.

This section provides a brief discussion of

What is It the lesson. This aims to help you discover
and understand new concepts and skills.

This comprises activities for independent

practice to solidify your understanding and
What’s More
skills of the topic. You may check the
answers to the exercises using the Answer
Key at the end of the module.

This includes questions or blank

What I Have Learned
sentence/paragraph to be filled in to process
what you learned from the lesson.

This section provides an activity which will

What I Can Do help you transfer your new knowledge or
skill into real life situations or concerns.

This is a task which aims to evaluate your

Assessment level of mastery in achieving the learning

3
 competency.

In this portion, another activity will be given

Additional Activities to you to enrich your knowledge or skill of
the lesson learned.

Answer Key This contains answers to all activities in the

module.

At the end of this module you will also find:

References This is a list of all sources used in

developing this module.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of the
module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities
included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.

If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you
are not alone.
We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!

4
 Financial institutions serve most people in some way, as financial operations are a critical
part of any economy, with individuals and companies relying on financial institutions for
transactions and investing. Governments consider it imperative to oversee and regulate banks and
financial institutions because they do play such an integral part of the economy.
Now, in this lesson we will focus on the definition of bank and nonbank financial institutions
and its loan requirements.

LEARNING COMPETENCY:
▪ Compare and contrast the loan requirements of the different banks
and nonbank institutions (ABM_BF12- IIIe-f-14)

OBJECTIVES:
K: Identify bank and nonbank institution;
S: Enumerate the loan requirements of the different banks and
nonbank institutions;
A: Recognize the loan requirements of the different banks and
nonbank institutions.

I
Pre-assessment
A. Multiple Choice. Choose the letter corresponding to the correct answer and write it in your
notebook.
1. It is the most liquid asset.
A. cash B. Accounts receivable C. inventory
2. Which of the following spring out of the end to sell merchandise?
A. cash B. Accounts receivable C. inventory
3. It shows the willingness of the borrower to repay the loan.
A. Character B. Capacity C. Collateral D. Capital
4. What is a customer’s financial resources?
A. Character B. Capacity C. Collateral D. Capital
B. Essay. Answer what is asked. Accomplish this in your notebook.
Explain the tools used in managing the following.
1. Cash
2. Accounts receivable
3. Inventory

5
 ’s In

Task 1

Direction: Take a look at the picture below. Answer the guide questions below.
Accomplish this in your notebook.

Source:
https://www.google.com/search?rlz=1C1CHBD_enPH838PH838&sxsrf=ALeKk00YFMkBgcoxBl
BUKUD6g1HnvRQiRw:1612017908035&source=univ&tbm=isch&q=loan+requirements+of+bank
ing+institution&sa=X&ved=2ahUKEwjnoZ7W8sPuAhXWP3AKHQj5DyQQjJkEegQIJBAB#imgr
c=JEkLYq_Afrv_UM

Guide questions:

1. What are the different figures that you that gives impact to you?
2. Do the figures relate each other? Explain briefly.
3. How did you find its relationship?

6
 ’s New

Task 2

Direction: Copy the rectangular box below and write your answers in your notebook.

Question: What comes to your mind when you hear the word loan requirement?

7
 is It

Bank and Nonbank Institutions

Banking Institution

Banking Institution also referred to as a universal or commercial bank can range from a
large financial institution with a highly visible brand name and an international presence to a small
organization with a local presence.
A banking institution’s financing activities generally involve various types of lending, such
as corporate finance, housing, project finance, retail, short-term finance, small-medium
enterprises, trade, and others. Alternatively, the focus of a banking institution may be only on
specific transactions with clients that meet certain requirements and within certain industry sectors.
Banking institutions may also provide financial products with a focus on environmental business
opportunities.

Financial institutions
Financial institutions otherwise known as banking institutions, are corporations that provide
services as intermediaries of financial markets. Broadly speaking, there are three major types of
financial institutions:

1. Depository institutions – deposit-taking institutions that accept and manage deposits and
make loans, including banks, building societies, credit unions, trust companies,
and mortgage loan companies;
2. Contractual institutions – insurance companies and pension funds
3. Investment institutions – investment banks, underwriters, brokerage firms.
Financial institutions can be distinguished broadly into two categories according to ownership
structure:

1. Commercial Banks
2. Cooperative Banks

Nonbank Financial Institutions

A nonbank financial institution (NBFI) is a financial institution that does not have a full
banking license and cannot accept deposits from the public. However, NBFIs do facilitate
alternative financial services, such as investment (both collective and individual), risk pooling,
financial consulting, brokering, money transmission, and check cashing.

These are other financial institutions which engage in specific functions. They provide services
related to claims, financial information and advice, manage portfolios of financial assets on behalf
of other economic units, buy and sell claims on institutions from clients, and assist in finding
sources for those economic units seeking loans.

8
 1. Risk pooling institutions

Insurance companies underwrite economic risks associated with death, illness, damage to or
loss of property, and other risk of loss. They provide a contingent promise of economic protection
in the case of loss. There are two main types of insurance companies: life insurance and general
insurance. General insurance tends to be short-term, while life insurance is a longer contract, ending
at the death of the insured. Both types of insurance, life and property, are available to all sectors of
the community.

2. Contractual savings institutions

Contractual savings institutions (also called institutional investors) provide the opportunity
for individuals to invest in collective investment vehicles in a fiduciary rather than a principle role.
Collective investment vehicles invest the pooled resources of the individuals and firms into
numerous equity, debt, and derivatives promises.

3. Other nonbank financial institutions

Market makers are broker-dealer institutions that quote both a buy and sell price for an asset
held in inventory. Such assets include equities, government and corporate debt, derivatives, and
foreign currencies.

NBFIs are a source of consumer credit (along with licensed banks). Examples of nonbank
financial institutions include:

o Insurance firms
o Venture capitalists
o Currency exchanges
o Microloan organizations
o Pawnshops.

4. Government Non-Bank Financial Institutions

As the banking system was evolving there was a parallel development of the other financial
institutions. Insurance for workers under the Government Service Insurance System was in
operation by 1936. Compulsory social security insurance in the private sector was founded in 1957
with the creation of the Social Security System.
These institutions were created essentially to protect the welfare of employees. The
consequence was that they set up large funds that were generated from the insurance premium of
members and their counterpart institutions. A logical result was the corresponding effort to
administer the welfare programs to protect the insurance funds that are generated.

Among these are institutions like PAG-IBIG fund. In conjunction with the promotion of
housing, the government also created the National Home Mortgage Financing Corporation which is
designed as a national mortgage bank that could refinance the mortgage papers of other financial
institutions.

9
Component Institutions

1. Investment Houses. These are stock corporations engaged in the underwriting of

securities of other corporations on a guaranteed basis. Their principal role is capital formation that
can engage in portfolio management, stockbrokerage, financial consultancy and lending operations.
As it applies to the US financial system, the investment banking industry is part of the larger
securities sector. It is basically made up of firms engaged in issuing, distributing and selling
securities and related financial products. Investment banks, brokerages and market- making entities
comprise the securities sector. Investment banks are global financial institutions which perform any
or all of the service functions of origination and issue, management, underwriting and distribution.

2. Financing Companies. Organized for the purpose of extending credit facilities to

consumers and to industrial, commercial, or agricultural enterprises. They operate by discounting or
factoring commercial papers or accounts receivables, or by buying and selling contracts, leases,
chattel mortgages, or other evidences of indebtedness, or by leasing motor vehicles, heavy
equipment and industrial machinery, business and office machines and equipment, appliances, and
other movable properties.

3. Investment Companies. Any issuer which the Commission, upon application by such
issuer, finds and by order declares to be primarily engaged in a business or businesses other than
that of investing, reinvesting, or trading in securities either directly or (A) through majority-owned
subsidiaries or (B) through controlled companies conducting similar types of business.

4. Securities Dealers and Brokers. A securities dealer buys and sells shares of stock of
another or acquires securities for profit. In contrast, a securities broker facilitates transaction
between a buyer and seller of securities for a commission

5. Venture Capital Corporations. These are organized jointly by private banks, the
National Development Corporation and the Technology Livelihood Research Center and/or other
government agencies to develop, promote, and assist small and medium scale enterprises through
debt to equity financing.

6. Pawnshops. Provide credit to small borrowers who are not qualified to obtain small loans
from other financial institutions. Cost of borrowing and terms of payment are generally fair making
it as one of the components of the country’s financial system that plays a vital role in socio-
economic development. Compared with banks, pawnshops do not impose as many documentary
requirements before releasing cash to customers. Moreover, the latter are more accessible, as they
may be found even in remote areas where banks do not operate.

7. Lending Investors. Lending investors are those who make a practice of lending money
for themselves or others. They extend all types of loans, generally short term, often without
collateral, using their own capital.

8. Mutual Building and Loan Associations. These are corporations whose capital stock
must be subscribed by the stockholders in regular equal installments with the purpose of
accumulating the stockholders’ savings and repaying them with their accumulated savings and

10
profits upon surrender of their shares in order to encourage industry, savings, and home building
among its stockholders.

Bank Loan Requirements

1. Purpose of Loan

While some lenders don’t have usage restrictions, most will want to know how you plan to
spend it. For instance, some businesses experience resistance from banks when they apply for a loan
to reduce existing debt.

In comparison, banks usually approve of businesses using loans for the following reasons:

• Improve Cash Flow

• Purchase Equipment
• Pay for Expansion Projects
• Purchase Inventory
• Use as Payroll

2. Business Experience

When reviewing your loan application, banks will consider how much experience you have.
If you’ve owned your business for years, and have managed your finances responsibly, this will be
in your favor. In comparison, if you’ve recently opened your business, or have struggled financially,
this could be detrimental.

3. Business Plan

When applying for a bank loan, you might be asked to submit your business plan. It might
seem tedious, but your business plan can help the bank determine the right loan amount and term
for you.

4. Credit History

When considering your business for a loan, a bank will conduct a credit check. They’ll do
this to determine your personal and business credit scores. Personal credit history especially matters
for businesses that operate as proprietors or partnerships. In both cases, the business owner assumes
partial or full financial responsibility for the company.

5. Personal Information

Even though you’ll be borrowing money for your business, some personal information could
affect your ability to qualify. As we mentioned in the previous section, your personal credit score
will affect your eligibility. In addition, banks usually also request the following personal
information in your application:

• Addresses
• Criminal record
• Information on your education

11
 • Tax returns
• Financial statements
• Assets
• Personal Loan Balances

6. Financial Statements

In addition to personal financial information, you’ll also need to submit your business’s
financial statements. The amount of statements will vary depending on the bank you’re applying to.
Most banks will require a balance sheet, profit and loss statements, cash flow statements, income
statements, and other financial projections. In addition, they may want to see your business’s bank
account balances.

7. Collateral

Even if your business or personal credit history falls below bank loan requirements, you
could still receive financing by submitting collateral. Banks define collateral as business or personal
property that you put up to guarantee the repayment of a loan.

Other forms of collateral include automobiles, expensive jewelry, and high-end antiques.
The expected useful life of your collateral must match the lifespan of the business loan.

8. Cash Flow

The primary financial concern for banks when it comes to accepting applicants involves
business cash flow. In other words, does your business generate enough cash flow to repay a bank
loan on-time? To determine this, the bank will ask you to present information about your primary
business cash sources. Most banks understand that managing cash flow is a common challenge for
business owners, especially entrepreneurs that own seasonal businesses.

What are the usual loan requirements and application? See table below.

Loan Applications Requirements Loan Application process

Demographics –includes the name or • Receipt of application form and required
business name, birthdate, address, SSS no., documents;
TIN no., phone no., and other identifying
information such as valid government-issued
identification cards
Income or revenue refers to current personal • Verification of information in the
income and employer, employment and application form and required documents
salary history, and business revenue, if there may include interview;
is already an existing business.
Assets and Liabilities-applicants may ask to • Checking credit history
disclose their checking savings and
investment accounts and their outstanding • Writing credit report with appropriate
loans and credit cards, if there are any. recommendations
Contact or references-require identification • Documenting final decision
and contact information of existing
employers, previous employers, or even

12
nearest relative not living with the identified • If approved, final documents sign-off
contact (interest rate and other terms) and loan
release
Attest and authorization require affixing • If rejected, rejection letter sent to
applicant’s signature on the credit applicant
application stating that everything on the
application is true and correct and
authorizing the lender to verify the
information provided with the identified
contacts and references.
The credit department evaluates on the basis
of Character, Capacity, collateral, capital and
conditions or 5C’s of credit

Note: Loan application requirements and process vary among banks, credit cooperatives and
commercial finance companies.

’s More

Task 3

Direction: Copy the process questions below in your notebook and answer directly.
1. In loan application, when is a co-maker required?
2. What is the importance of affixing applicant’s signature on the loan application?
3. Enumerate the five C’s of credit and describe each.

Task 4

Direction: List at least five important details to be filled-in in the following sample of loan
application form of a banking financial institution and give its importance. Write it in your
notebook.

13
Source: https://www.pdffiller.com/14442794-fillable-maybank-philippines-personal-
loan-pdf-form

14
Task 5

Direction: List at least five important details to be filled-in in the following sample of
loan application form of a non- bank financial institution and give its importance.

Source: https://www.pdffiller.com/jsfiller-
desk13/?requestHash=19e149defb4cc48ddf7a58e55ab973873efba7926ce6c0c5cc44ef93cd7eb55f&
projectId=632199817#1e72e0d7785badac8701bd42bfe6784f

15
 I Have Learned

Now that we are finished in our lesson, let us review the topics we have learned.

Task 6
Direction: Answer the following questions below in your notebook.

1. What are the two main classification of Financial Institution? How do they differ
in terms of loan requirements?
2. Do Nonbank Financial Institutions have full banking license? Briefly explain
your answer.
3. Name at least three (3) bank loan requirements and briefly describe the
importance of each.

I Can Do

Task 7
Direction: Choose one bank, one credit cooperative and nonbank financial institution. Research on
the following: Accomplished in your notebook.
a. compare the loan application requirements
b. loan application process.

RUBRCIS for scoring.

OUTSTANDING (20pts)
Appropriateness: Fulfills or exceeds all of the assigned content requirements.
Accuracy: Knowledge of the subject is accurate throughout.
Extensiveness: Exhibits convincing range and quality of knowledge, having done
appropriate research, if applicable.
Perspective: The information presented reveals the understanding of the concept.
EFFECTIVE (15pts)
Appropriateness: Fulfills the important content requirements of the assignment.
Accuracy: Knowledge of the subject is accurate throughout except in minor details.
Extensiveness: Seems informed on the subject, having done appropriate research, if
applicable.
Perspective: The information presented reveals understanding of the concept
ADEQUATE (10 pts)
Appropriateness: Fulfills some of the important content requirements of the
assignment.
Accuracy: Knowledge of the subject is generally accurate, though flawed.
Extensiveness: Exhibits limited range or quality of knowledge, having done minimal

16
appropriate research, if applicable.
Perspective: The information presented reveals partial understanding of the concept.
INEFFECTIVE (5pts)
Appropriateness: Fails to address the important requirements of the assignment.
Accuracy: Knowledge of the subject is generally inaccurate.
Extensiveness: Knowledge of the subject lacks range or quality.
Perspective: The information presented reveals failure to understand the concept.

Directions: Identify what is asked in each item. Write the letter of the correct answer in your
notebook.
A. Modified Matching Type: Classify the following and write the correct answer in the correct
column. Accomplish this in your notebook.

Purpose of Loan Personal Information Pawn Shops

Microloan Organizations Investment Insurance Firms
Depository Contractual Collateral

Bank Non-bank Loan requirement

1. 4. 7.
2. 5. 8.
3. 6. 9.

B. Essay. Answer what is asked.

10 – 12 . What is the difference between bank and nonbank financial institution?
13 – 15. State the common loan requirements among bank and nonbank financial institution

Reflection

Complete the following statements. Write your statements in your activity notebook.

1. As an ABM student, I have learned…_______________________.

2. As an ABM student, it is very important for us to learn…_______________________.

3. Using the knowledge I have learned in this lesson, I will be able to..._______________________.

17
18
References
What is bank? Accessed: January 17, 2021.
[https://www.google.com/search?rlz=1C1CHBD_enPH838PH838&sxsrf=ALeKk00YFMkBgcoxBl
BUKUD6g1HnvRQiRw:1612017908035&source=univ&tbm=isch&q=loan+requirements+of+bank
ing+institution&sa=X&ved=2ahUKEwjnoZ7W8sPuAhXWP3AKHQj5DyQQjJkEegQIJBAB#imgr
c=JEkLYq_Afrv_UM]
What is banking financial institution? Accessed: January 17, 2021.
[https://en.wikipedia.org/wiki/Financial_institution]
What is nonbank financial institution? Accessed: January 17, 2021.
[https://en.wikipedia.org/wiki/Non-bank_financial_institution]
Everything you know about NBFI. Accessed: January 18, 2021.
[https://glenhawk.com/nbfi/]
Nonbanking Financial institution. Accessed: January 18, 2021.
[https://www.worldbank.org/en/publication/gfdr/gfdr-2016/background/nonbank-financial-
institution]
Bank loan requirements. Accessed: January 21, 2021.
[https://www.forafinancial.com/blog/working-capital/8-bank-loan-requirements/]
May Bank Loan application form. Accessed: January 21, 2021.
[https://www.pdffiller.com/14442794-fillable-maybank-philippines-personal-loan-
pdf-form]
SSS Loan Application form. Accessed: January 21, 2021.
[https://www.pdffiller.com/jsfiller-
desk13/?requestHash=19e149defb4cc48ddf7a58e55ab973873efba7926ce6c0c5cc44ef93cd7eb55f&
projectId=632199817#1e72e0d7785badac8701bd42bfe6784f]

19