COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 1

CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

Small and medium-sized enterprises (SMEs) are critical for a country's

economic growth, job creation, and innovation (Aldaba, 2011). He also added

that one of the primary restrictions influencing their performance and

competitiveness has been their lack of access to financing. Furthermore, he

claimed that a significant proportion of SMEs are unable to secure financing

from banks and other sources in order to start, innovate, grow, and develop

their businesses due to a lack of access to capital.

In the Philippines, to be considered as a SMEs, a business should only

have an asset valued, land not included, from PhP 3 million to PhP 100 million

and an employment size of 10 to 199 employees. Adlina (2020) emphasized

that small and medium-sized enterprises (SMEs) have created over 2.5 million

employment opportunities in the country, demonstrating the importance of

these businesses to the country's growth.

Even though SMEs provide solutions to various economic problems,

they confront constraints that limit their development. Given that problem, the
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 2

researchers aim to broaden the understanding of the alternative lending options

available to SMEs.

All types of enterprises can benefit from business lending. Some

common uses for business lending include: working capital loans, commercial

and industrial loans for short-term needs, asset financing for equipment and

machinery, and business vehicles (Murray, 2020).

A lending institution is any form of financial organization that lends

money to people. This paper focuses primarily on three lending institutions:

banks, cooperatives, and five-six lending.

An article of About Lending Companies and Financing Companies (n.d.)

elaborated that the Securities and Exchange Commission emphasized that a

lending company may grant loans in such amounts and at reasonable interest

rates and charges as may be agreed upon between the lending company and

the debtor, provided that the agreement complies with the provisions of

Republic Act No. 3765 (Truth in Lending Act) and Republic Act No. 7394

(Consumer Act of the Philippines).

Bolton et al. (2013) explained that beyond providing loans to firms and

households, banks have long been viewed to perform a more critical function

than just evaluating loan applicants one at a time. Banks can play a continual

role in managing a firm's financial needs as they arise, whether in response to

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 3

new investment opportunities or a crisis, by developing a relationship with the

companies they lend to.

Small business loans advanced by cooperative lenders have a much

lower chance of default than those advanced by mainstream banks, at least

during the first four years after disbursement, when default costs are highest

(Nitani & Legendre, 2021).

In an article published by the Department of Finance (2017), five-six

lenders typically extend loans without requiring collateral or any documentation,

but charge their borrowers an excessive nominal interest rate of 20% or more

for a set length of time.

Pasig City is considered as one of the commercial and industrial centers

and has evolved from one of the first municipalities and rural residential regions

to a highly urbanized business sector with several multinational corporations,

large-scale commercial hubs, and other significant institutions (Suarez &

Generalao, 2020).

The purpose of this study is to assess how the engagement of

lending institutions affect the financial performance of selected SMEs in Pasig

City. Moreover, the study included factors such as accessibility, collateral,

payment scheme, processing time, and rate of interest to examine their relation

to the financial performance of selected SMEs. Furthermore, this study will

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 4

provide recommendations that can be used to address problems identified by

the respondents.

Theoretical Framework

This paper aims to assess how the engagement of lending institutions

affect the financial performance of selected SMEs in Pasig City.

Credit rating is one of the theories that inspired the making of the study’s

framework. According to Perez (2020) a credit rating is defined in the

Philippines by Republic Act No. 9510, also known as the Credit Information

System Act, as "an opinion evaluating the creditworthiness of a borrower or

issuer of debt security" and "using an established and defined ranking system,"

but the country currently has no centralized credit scoring methodology. Despite

this, financial firms in the Philippines may model it after those used in the US or

the UK.

The Fair Isaac Corporation developed the FICO credit score (FICO).

Lenders assess credit risk and decide whether to issue credit based on

borrowers' FICO scores and other information on their credit reports. FICO

ratings consider information from five areas to evaluate creditworthiness:

payment history (35%), credit utilization ratio (30%) , length of credit history

(15%), types of credit used (10%) , and new credit accounts (10%). Then, the

FICO score adds up to assess a person’s credit record (Brock, 2021).

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 5

The second theory that influenced this study is the “theory of

moneylenders,” emphasizing that formal and informal loans can be

complementary or alternative. She observed that this is why weak legal

institutions boost the presence of informal finance in some markets while

decreasing it in others, why financial market segmentation continues, and why

informal interest rates can vary greatly even within the same sub-economy

(Madestam, 2014).

Another relevant theory to this study is the “loan commitment theory,”

which describes a deal in which a bank pledges to lend to a customer on

specified terms but has the ability to back out if the borrower's creditworthiness

declines. The contract also defines the various costs that must be paid

throughout the commitment's duration. In today's economy, loan obligations are

commonly used. As their use has grown, a body of knowledge has accumulated

to explain why they exist, how they are priced, and how they affect the bank's

and deposit insurer's risk (Loewenstein, 2001).

This study is also anchored in an article published online by

Tutorialspoint. It was discussed that, according to the "commercial loan theory,"

a commercial bank should only make short-term self-liquidating productive

loans to businesses. Self-liquidating loans are those that are used to fund the

production and evolution of commodities through the many stages of

production, storage, transportation, and distribution.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 6

Conceptual Framework

Figure 1: Research Paradigm

Engagement of Lending Institutions to the Financial Performance of

Selected SMEs in Pasig City

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 7

The conceptual model used in this research study is the Input-Process-

Output (IPO) model, which shows an elevated series of boxes connected.

The first frame, which is the input, shows the demographic profile of the

respondents like gender, age, educational attainment, nature of business,

years in the business, number of employees, and monthly sales/income. Banks,

cooperatives, and five-six lending institutions are also included. Moreover, it

includes the factors considered by SMEs when obtaining loans from selected

lending institutions, such as accessibility, collateral, payment scheme,

processing time, and rate of interest.

The second frame, which is the process, contains the following

procedure that will be performed to achieve the output: it includes data

gathering via questionnaire distribution. After the data has been collected and

analyzed, the data is presented and interpreted.

The third frame, which is the output, displays the engagement of lending

institutions to the financial performance of selected SMEs in Pasig City

based on an assessment of the survey’s outcome from the input and process

method.
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 8

Statement of the Problem

The purpose of this study is to assess how the engagement of

lending institutions affect the financial performance of selected SMEs in

Pasig City.

Specifically, it sought answers to the following sub-questions:

1. What is the demographic profile of the SME owners in terms of:

1.1 Gender;

1.2 Age;

1.3 Educational Attainment;

1.4 Nature of Business;

1.5 Years in the Business;

1.6 Number of Employees and

1.7 Monthly Sales/Income?

2. What is the most preferred lending institution of SME owners in Pasig City?

2.1 Banks

2.2 Cooperatives
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 9

2.3 Five-Six Lending

3. What are the factors considered by SMEs when obtaining loans from

selected lending institutions in terms of :

3.1 Accessibility;

3.2 Collateral ;

3.3 Payment Scheme;

3.4 Processing Time and

3.5 Rate of Interest?

4. What are the perceived effects of the identified factors to the financial

performance of SMEs?

5. How do the selected SMEs assess the effectiveness of loans provided by

the lending institutions?

6. Is there a significant relationship between the factors and its effect on the

financial performance of SMEs?

Hypothesis to be Tested

There is no significant relationship between the factors and its effect on

the financial performance of SMEs?

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 10

Scope and Delimitations/ Limitations of the Study

This study aims to assess how the engagement of lending institutions

affect the financial performance of selected SMEs in Pasig City. Moreover,

it aims to identify the lending preferences of small and medium-sized

enterprises (SMEs) owners by analyzing the factors affecting their financing

decisions. The researchers listed five factors such as accessibility, collateral,

payment scheme, processing time, and rate of interest. Furthermore, this study

will provide recommendations that can be used to address problems identified

by the respondents.

This study is limited to the following indicators: the factors considered by

small retailers in choosing lending institutions, such as accessibility, collateral,

payment scheme, processing time, and rate of interest. These three lending

institutions are: banks, cooperatives, and five-six lending. And the five above

mentioned factors and their relationship to the financial performance of SMEs

in general.

This study will cover the data from 2011 up to the present. Researchers

will survey 353 SMEs owners in Pasig City to support data reliability.

Respondents will come from various industries such as manufacturing,

merchandising, and servicing.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 11

Significance of the Study

The study on the engagement of lending institutions affecting the

financial performance of selected SMEs owners in Pasig City is of prime

significance to various stakeholders. Thus, this analysis is considered

beneficial to:

Small medium-sized enterprise owners may use this study to

enhance their knowledge of how their financial performance is affected by their

financial acquisitions from lending entities. This study allows them to pick the

best and most convenient payment method. Also, it can be beneficial for them

in designing an optimal capital structure for their firms.

Lending Institutions may use this study to determine the factors

considered by SME owners in acquiring a loan. This can be an eye opener to

meeting customer satisfaction and ensuring the welfare of the customers.

Policy-makers of Lending Companies may use this study as a basis

to assist policy-makers in improving lending infrastructure and the development

of a sustainable credit guarantee scheme to solve the collateral issue of the

SMEs and ease their access to finance.

Students may use this study to widen their understanding of lending

entities, financial performance, and SMEs. It will also provide a realistic view of

the lending entities affecting the SMEs' financial performance.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 12

Academe may use this study as a rationale for relating the underlying

factors in choosing lending entities towards the SMEs' financial performance.

General Public may be aware of the financial performance of SMEs

concerning the financial acquisition of lending entities. It will broaden their

knowledge of how lending entities impact the financial performance of SMEs.

Future Researchers may use this correlational study to generate ideas

by using this paper as a source of literature. It may be used as a reference soon

to accumulate information about SME financial performance after their chosen

lending entities.

Definition of Terms

For a better understanding and clarification of the terms used in this

study,

The following terms are operationally defined.

Accessibility evaluates the likelihood that a customer in need of credit

will be able to obtain a loan at a given moment.

Bank is a financial instrument that business owners can use to meet any

short-term capital requirements. The approved amount can be used to increase

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 13

working capital, purchase new machinery, construct new infrastructure, cover

operational costs, and other similar expenses.

Cooperatives refers to an association of people (organization) that is

owned and managed by the people to achieve their common economic, social,

and/or cultural needs and ambitions through a democratically controlled and

cooperatively owned business (enterprise).

Collateral is a physical asset or type of wealth that the borrower holds,

such as a house, livestock, or automobile. The banks make loans to the

borrower based on these assets. The lender uses the collateral as a form of

security.

Five-Six Lending is a loan scheme used by predominantly Indian

nationals who charge a monthly interest rate of 20%, meaning that if a borrower

borrows five pesos, he must pay six pesos in interest.

Payment Scheme refers to a collection of specified requirements for

completing transactions using a certain payment instrument (such as credit

transfer, direct debit, card, etc).

Processing Time pertains to how long it takes to acquire a loan. It

involves evaluating the application and ensuring that the borrower has

submitted all the required papers and that all the information is correct.
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 14

Rate of Interest refers to the percentage of the money lent that lenders

charge for a given period. The span of time over which the cash is lent

determines the total interest on the amount, or principal sum. Simple interest is

used in most loans.

Small and medium-sized enterprises are non-subsidiary, independent

firms that employ fewer than a given number of employees. These are the self-

employed, contractors, online retailers, consultants, freelancers, sole traders,

cleaners, and hairdressers.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 15

CHAPTER II

REVIEW OF RELATED LITERATURE

This chapter presents the relevant studies that the researchers reviewed

to offer strong positions of other researchers and support the relevance of this

study. These articles discuss the theories, concepts and principles relevant to

the research being undertaken by the researchers and give a synthesis on the

reviewed literature and studies.

Demographic Profile

An article from Journal of Small Business and Entrepreneurship

Development (n.d.) explained that the majority of SMEs are owned by men.

However, women's ownership in small businesses is increasing, particularly in

entrepreneurial ventures. In 2013, women owned or controlled 47 percent of

SMEs in Canada.

According to the 2017 Survey on Financing and Growth of Small and

Medium Enterprises, (2021), men owned 63.5 percent of SMEs and women

owned 15.6 percent, with the remaining 20.9 percent held equally by men and

women. Furthermore, the statistics revealed that SMEs owned equally by men

and women were more likely to operate in the accommodation and food

services and agriculture sectors than all other SMEs. SMEs owned equally by

men and women tended to operate in the following sectors: all other (16.2%),
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 16

construction (16.2%), professional, scientific, and technical services (12.4%),

retail trade (12.4%), and accommodation and food services (11.7%).

As studied by Chowdhury and Alam (2017) there was a significant

positive association between access to finance and firms’ characteristics and

financial characteristics. The study revealed that the size and age of the firm

and their inability to produce collateral were found to be affecting the firms’

access to funding In other words, overall firms’ characteristics directly affect the

firms access to finance. Furthermore, they claimed that financial characteristics

like start-up capital, current status of capital, interest rate, and business

plan directly affect the access to finance by SMES. They claimed that among

the owners’ characteristics, the skilled and educated entrepreneurs with the

ability to build up relationships with the financial institutions had access to credit

and were able to manage the borrowed funds for business purposes.

Experienced owners and managers in dynamic industries such as

information technology may also find their knowledge obsolete if they can’t

adapt to the constantly-changing business environment (West & Noel, 2011).

Lending Institutions

Banks

According to Kagan (2021) individual consumers and small-to medium-

sized enterprises can use banks for basic banking services and products. Also,

she elaborated on the services available in commercial banks, such as

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 17

checking and savings accounts, loans and mortgages, basic investment

services, and other services.

An article from OECD (2015) discussed that bank lending is the most

common source of external finance for many SMEs and entrepreneurs, who

are frequently overly reliant on traditional debt to meet their start-up, cash flow,

and investment requirements. Traditional bank finance, while widely used by

small businesses, poses challenges to SMEs, particularly newer, innovative,

and rapidly growing companies with a higher risk-return profile.

Bolton et al. (2013) explained that beyond providing loans to firms and

households, banks have long been viewed to perform a more critical function

than just evaluating loan applicants one at a time. Banks can play a continual

role in managing a firm's financial needs as they arise, whether in response to

new investment opportunities or a crisis, by developing a relationship with the

companies they lend to.

Cooperatives

Potters (2020) discussed that a financial cooperative is a structure that

allows members to own and administer a financial organization, an example is

a credit union. He added that the cooperative is frequently run democratically,

with each member having one vote. Furthermore, these cooperatives are

known for providing high-quality service at reasonable prices.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 18

An article published by the International Cooperative Alliance (n.d)

discussed that cooperatives are member-owned, managed, and run

businesses that help people achieve their common economic, social, and

cultural goals. Thus, people can take control of their economic future through

cooperatives, and because they are not owned by shareholders, the economic

and social benefits of their activities stay in the communities where they are

founded. Profits are either re-invested in the business or distributed to the

members.

Small business loans advanced by cooperative lenders have a much

lower chance of default than those advanced by mainstream banks, at least

during the first four years after disbursement, when default costs are highest

(Nitani & Legendre, 2021)

An article published by UpFinance (n.d) discussed how a credit

cooperative focuses on customer satisfaction rather than profit maximization.

Credit cooperative organizations play an important role in supplying liquidity to

different segments of society. The Cooperative Development Authority (CDA)

register maintains a record of all registered credit cooperatives in the

Philippines. On CDA's official website, you can find all the important information

about credit cooperative formation and other legal and regulatory elements in

the Philippines.
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 19

According to Zoleta (2020), a credit cooperative is a group of small

borrowers and savers who cannot afford standard banking services, usually

micro and small company owners, small farmers, and low-wage workers. This

sort of cooperative allows members to save and/or borrow money at

significantly lower rates than banks.

McKillop et al. (2020) emphasized that financial cooperatives play a

significant role in many countries' financial systems. They serve as a safe haven

for deposits and are important sources of credit for individuals and small and

medium-sized businesses. The popularity and long-term viability of financial

cooperatives can be attributed to their not-for-profit nature and a focus on

maximizing member advantages.

Five-Six Lending

The five-six lending method is well-known among Filipinos. Potential

borrowers are not required to provide collateral or meet a slew of other

documentation criteria by these lenders. Furthermore, five-six lenders

frequently disregard the concept of a credit limit, implying that you can borrow

as much as you want. Finally, unlike bank loans, this type of loan has no formal

agreements, making the process faster (eCompareMo, 2014).

Danganan (2012) examined why people borrow money from five-six

lenders and outlined the terms and conditions that the lender and borrower
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 20

agreed to. Her study found that borrowing money from five-six informal lenders

is beneficial solely to the lender.

Factors Considered by SMEs When Obtaining Loans

Accessibility

As studied by Hong Son and Duc Son (2011), access to financial

services typically concerns the availability, pricing, type, and quality of financial

services available. These dimensions can also be classified as reliability (i.e.,

the ability to obtain financial services when needed), convenience (i.e., the ease

with which financial services can be obtained), continuity (i.e., the ability to

obtain financial services repeatedly), and flexibility (i.e., the ability to obtain

financial services on a regular basis) (i.e., tailoring of financial products to the

needs of the users).

Collateral

In an article published online by the European Central Bank (2016), it

was discussed that a bank would agree to put your home as collateral. This

implies that if you don't pay your mortgage on time, the bank has the authority

to seize possession of your house. Consequently, the bank will then be able to

sell your home to repay the money it lent you. Even if the borrower does not
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 21

return the loan as promised, collateral acts as an assurance to the lender that

they will get the amount granted.

Humphries (n.d.) revealed that when an Indian five-six moneylender

sees a successful business, he or she would approach the owner. Almost

everyone interviewed said that Indian five-six moneylenders are the ones that

take the initiative. However, in the absence of inside information, Indian lenders

use careful observation to pre-screen the profitability of their prospects based

on the following criteria: Store size and location—larger establishments are

considered more creditworthy. When compared to ambulant sellers who can

quickly vanish, stores positioned within the wet market have a lower risk of

defaulting on payments.

As studied by Githinji et al. (2019), small businesses' capital constraints

are one of the reasons for their low fixed asset proportion. It is difficult for them

to obtain substantial fixed assets due to the necessity of raising large sums of

capital.

Certain credit risk reduction measures, such as risk control strategies,

are used by banks and other lending institutions to lower the likelihood of

borrowers defaulting on their loans and the quantity of non-performing assets.

The 5 Cs of credit is an excellent illustration. These give lenders a framework

for reducing credit risk and detecting the loan's underlying risk. Character,
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 22

capacity, capital, collateral, and conditions are the five Cs of credit (Mehta,

2022).

Payment Scheme

In an article published online by Access to Payment Systems (n.d), it

was explained that a payment scheme is a governing organization that

establishes the rules and technical requirements for the execution of payment

transactions using underlying payment systems. Furthermore, payment

schemes oversee the day-to-day operations of payment systems and

procedures, as well as ensure that all regulatory obligations related to payment

processing are completed.

According to Hofstrand (2013), many loans are repaid over time with a

series of installment payments. In addition, these payments normally include

interest calculated on the loan's unpaid sum as well as a part of the unpaid

balance. He emphasized that a payment of principle is the payment of a portion

of the loan's unpaid sum.

Most lending institutions have a monthly payment schedule, while there

are also quarterly, annual, and other payment options. He added that the

amount paid each month for interest and principal repayment is usually

specified in many mortgage contracts. Annuity mortgages are a type of

mortgage that works in this way. This means that the amount of interest paid

each period will gradually decrease, while the amount paid off each period will
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 23

gradually increase-but the total amount paid will always be the same (Aalbers,

2012).

As studied by Sukmana et al. (2017), cooperatives require services that

are more effective and efficient in carrying out their activities as technology

advances. Information systems should be utilized to handle cooperative data

and conduct payment transactions in order to apply financial technology and

thereby boost cooperatives' active involvement.

Processing Time

Moore (2016) claimed that many business customers demand a faster

turnaround, so three to six weeks is an acceptable timeline. However, some

banks do it faster, and other customers may want a quick response.

Furthermore, he discussed at the Sageworks Summit that the way for financial

institutions to solve for faster turnaround times and more convenience for their

commercial borrowers is to dissect the three to six weeks it takes to close a

loan and figure out exactly what the bottlenecks are and what's causing

them.Banks can generate insights and action plans to take a deal closer to

approval faster by leveraging information currently accessible to them.

Carabelli (n.d.) highlighted that approval times vary depending on how

many applications the lender receives and how many personnel it has to handle

them. They can be relatively rapid or take weeks.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 24

Rate of Interest

According to Noble (2021), to protect low-income borrowers from

predatory lending practices that impose high interest rates, the Bangko Sentral

ng Pilipinas (BSP) has approved a limit on interest rates imposed on short-term

credit granted by financing firms. She added that for covered short-term loans,

the Monetary Board has set a nominal interest rate of 6% per month or 0.2

percent per day.

Furhmann (2021) explained that banks are generally free to set their own

deposit and loan interest rates, although they must take into account

competitors' rates as well as market levels for a variety of interest rates and

monetary policies.

According to Humphries (n.d.), a nominal interest rate of 20% is charged

by five-six moneylenders over a specified time period. Over the course of a

week, a person who borrows 5 pesos from a five-six moneylender repays 6

pesos plus 1 peso in interest.

When you are a borrower, simple interest works in your favor because it

keeps the total amount you pay lower than it would be with compound interest.

The cost of spending or borrowing money without compound interest or interest

on interest is known as simple interest. It's relatively simple to calculate

because all you need is the principal amount borrowed and the time term

(Picardo, 2021).
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 25

Effects of Lending Institutions to the Financial Performance of SMEs

Financing services support both consumers and businesses because

they give customers more purchasing power and flexibility, and they help

businesses increase sales and improve cash flow (Financeit, 2019).

According to Wanjere (2020), the ability of SMEs to develop is heavily

reliant on their ability to invest in restructuring, innovation, and qualification, all

of which are heavily reliant on the availability of capital. As a result, commercial

banks have created lending technology to assist in the risk assessment process

when approving loans to SMEs.

Taking out a business loan boosts the creditworthiness of your company.

It implies that your credit score will rise once you make on-time payments and

pay off your loan within the specified time frame. This makes it easier for you

to obtain authorization for future loans with cheaper rates and more favorable

conditions (Positive Lending Solutions, 2019).

Hirankasi (2021) emphasized that banks may inadvertently harm the

business sector if they continue to insist on high amounts of collateral,

especially if they continue to favor traditional types of collateral while

overlooking emerging, alternate methods. Indeed, banks' views toward the

provision of new credit pose a special risk to SMEs, which are both an essential
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 26

element of the larger economy and, at the macro-level, a significant indicator of

the financial sector's health.

As studied by Githinji et al. (2019), small businesses' capital constraints

are one of the reasons for their low fixed asset proportion. It is difficult for them

to obtain substantial fixed assets due to the necessity of raising large sums of

capital.

An article published online called Prudential Private Capital (n.d)

explained that short-term borrowing is frequently tied to a business's

operational requirements. It has shorter maturities (3-5 years) than long-term

financing, making it more suitable for working capital movements and other

continuous operating needs. Banks have traditionally provided short-term loans

with fluctuating interest rates.

Dunn (n.d) emphasized that offering your customers payment

alternatives is certainly a good idea. Payment plans, credit or debit card

payments, online payments, cheques, cash, money orders, cashiers' checks,

automated withdrawals, or Western Union are some of the options available.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 27

Effectiveness of Loans Provided by the Lending Institutions

Owusu and Adoley (2014) emphasized that inorder to support and

strengthen the contribution of SMEs to economic development, lending

institutions should cut borrowing rates and lengthen repayment terms. Despite

the fact that only a few of them were able to secure the required amount, a large

number of SMEs profited from loans. The majority of SMEs accepted positive

loan contributions to boost profits, stock, and sales, putting them in a

competitive position.

As studied by Amuka and Finnegan (2014), the supply of financial

services, particularly lending and saving opportunities, is crucial to the

economy's growth. Loans' efforts to extend their services to marginalised and

small-medium businesses that have been excluded from the traditional formal

financial system have resulted in SMEs' improvement and development.

Loans are extremely beneficial when it comes to fulfilling working capital

needs and expanding a company. It can also assist in cash flow management

during difficult times. Business loans can help you maintain financial security

through difficult times, especially in the current economic situation (Bajaj

Finserv, 2021)
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 28

DeMerceau (2019) discussed that bank loans can be used to finance

inventory and equipment purchases, as well as operating capital and money for

business expansion.

Prieg and Greenham (2014) emphasized that on several criteria,

cooperative banks outperform shareholder banks: they earn more consistent

long-term profits, provide better customer service, and enhance local

economies by lending more to small and medium-sized enterprises.

Furthermore, their more careful approach to capital management helped them

weather the financial crisis better than commercial banks, indicating their

positive contribution to financial stability.

Synthesis:

According to the 2017 Survey on Financing and Growth of Small and

Medium Enterprises, (2021), men owned 63.5 percent of SMEs and women

owned 15.6 percent, with the remaining 20.9 percent held equally by men and

women.

An article from OECD (2015) discussed that bank lending is the most

common source of external finance for many SMEs and entrepreneurs, who

are frequently overly reliant on traditional debt to meet their start-up, cash flow,

and investment requirements. Moreover, small business loans advanced by

cooperative lenders have a much lower chance of default than those advanced

by mainstream banks, at least during the first four years after disbursement,
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 29

when default costs are highest (Nitani & Legendre, 2021). Furthermore,

according to Humphries (n.d.), a nominal interest rate of 20% is charged by

five-six moneylenders over a specified time period. Over the course of a week,

a person who borrows 5 pesos from a five-six moneylender repays 6 pesos plus

1 peso in interest..

With regard to accessibility, a study conducted by Hong Son and Duc

Son (2011) revealed that access to financial services typically concerns the

availability, pricing, type, and quality of financial services available. In the

aspect of collateral, an article published online by the European Central Bank

(2016), it was discussed that a bank would agree to put your home as collateral.

This implies that if you don't pay your mortgage on time, the bank has the

authority to seize possession of your house. As to the payment scheme,

Hofstrand (2013) discussed that many loans are repaid over time with a series

of installment payments.In addition, these payments normally include interest

calculated on the loan's unpaid sum as well as a part of the unpaid balance. He

emphasized that a payment of principle is the payment of a portion of the loan's

unpaid sum. However, Furhmann (2021) explained that banks are generally

free to set their own deposit and loan interest rates, although they must take

into account competitors' rates as well as market levels for a variety of interest

rates and monetary policies. Furthermore, Moore (2016) claimed that many

business customers demand a faster turnaround, so three to six weeks is an

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 30

acceptable timeline. However, some banks do it faster, and other customers

may want a quick response.

Studies about engagement of lending institutions revealed similar

conclusions regarding the effectiveness of loans provided by lending

institutions. As studied by Amuka and Finnegan (2014), the supply of financial

services, particularly lending and saving opportunities, is crucial to the

economy's growth. Loans' efforts to extend their services to marginalised and

small-medium businesses that have been excluded from the traditional formal

financial system have resulted in SMEs' improvement and development.

Furthermore, DeMerceau (2019) discussed that bank loans can be used to

finance inventory and equipment purchases, as well as operating capital and

money for business expansion. Financing services support both consumers

and businesses because they give customers more purchasing power and

flexibility, and they help businesses increase sales and improve cash flow

(Financeit, 2019).
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 31

CHAPTER III

RESEARCH METHODOLOGY

This chapter deals with the research method, population and sample

which includes the research method used, population and sampling scheme,

description of the respondents, determination of sample size, research

instrument, validation of the instrument, data gathering procedure, data

processing method and statistical treatment of data.

Research Method Used

The researchers will employ a descriptive correlational research design

method. Correlational research is a quantitative non-experimental design in

which the researcher uses correlational statistics to assess and characterize

the degree of relationship between variables or sets of scores (Creswell, 2012).

The researchers will choose this method because the variables

evaluated by correlational research are useful in determining the strength and

direction of each relationship. This characteristic allows future studies to focus

their findings as needed in order to determine correlation effectively.

Furthermore, a structured survey questionnaire will be used in this research.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 32

Population and Sampling Scheme

The researchers will conduct a survey limited to a total of 353 business

owners of selected small and medium-sized enterprises in Pasig City. The

respondents for this will be randomly chosen from District 1 and District 2.

District 1 consists of 21 barangays, namely Bagong Ilog, Bagong

Katipunan, Bambong, Buting, Caniogan, Kalawaan, Kapasigan, Kapitolyo,

Malinao, Oranbo, Palatiw, Pineda, Sagad, San Antonio, San Joaquin, San

Jose, San Nicolas, Sta. Cruz, Sta. Rosa, Sto. Tomas, Sumilang, and Ugong.

District 2 consists of 11 barangays as follows: Dela Paz, Manggahan,

Maybunga, Pinagbuhatan, Rosario, San Miguel, Santolan, and Sta. Lucia.

The target population of this study is all business owners of selected

small and medium-sized enterprises operating in the Philippines within Pasig

City only.

Description of Respondents

The total population used in this study is 2,978 registered SMEs as of

2022, which is based on the email requested from Pasig City Hall. The

respondents of this study are business owners of selected small and medium-

sized enterprises in Pasig City.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 33

Determination of Sample Size

The researchers utilized simple random sampling as the sampling

technique to be used in gathering the required number of respondents. In order

to determine the sample size, the researchers used Slovin’s formula as

calculated below.

N
n = ( )
1 + Ne 2

Where:

n = sample size

N = total population

e = margin of error

Thus,

2978
n = ( )
1 + 2,978 (0.05 ) 2

n ≅ 353

Therefore, the number of respondents needed in this study is 353

business owners of selected small and medium-sized enterprises in Pasig City.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 34

Research Instrument

In pursuit of answering the statement of the problem, a survey

questionnaire will be utilized to evaluate data based on the subject of interest.

The survey questionnaire is divided into five (5) main parts.

Part I will contain questions pertaining to the individual profiles of the

respondents like gender, age, educational attainment, nature of business,

years in the business, number of employees, and monthly sales/income.

Part II will classify the preferred lending institutions of SMEs, namely:

banks, cooperatives, and five-six lending.

Part III is about the factors considered by SMEs when obtaining loans

from selected lending institutions such as accessibility, collateral, payment

scheme, processing time, and rate of interest.

Part IV will consist of statements that correlate lending institutions and

the financial performance of SMEs, which the respondents will rate based on

their level of agreement.

Part V will contain statements assessing the effectiveness of loans

provided by the lending institutions.

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 35

It will be quantified using the likert scale with the following relative

values.

SCALE RANGE VERBAL INTERPRETATION

4 4.00 – 3.00 Strongly Agree

3 2.99– 2.00 Agree

2 1.99 – 1.00 Disagree

1 1.00 – 0.99 Strongly Disagree

Validation of the Instrument

The researchers will submit the questionnaire to the adviser for review,

recommendations, and validation.The validation process ensures that each

question in the questionnaire is understood and ready for distribution. The

professor who will assess the questionnaire's content should check the

grammar and recommend proper sentence structure to improve the study's

outcome.
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 36

Data Gathering Procedure

The researchers will conduct the study during the period of 2021-2022

to assess how the engagement of lending institutions affect the financial

performance of selected SMEs in Pasig City.

To begin collecting data, the researchers set aside time, effort, and

collaboration to develop and construct their study questionnaire in order to

serve their intended respondents. The questionnaire will be prepared utilizing

appropriate questions that are based from the researchers' related research

study.

The researchers will select a total of 353 business owners at selected

SMEs in Pasig City. The researchers will explain to the respondents briefly and

precisely each question to clarify uncertain details. The questionnaire is

designed to be simple to comprehend and answer, resulting in a trustworthy

and realistic response from the respondents. Following the completion of the

surveys, the researchers will begin tabulating and summarizing the obtained

data in preparation for statistical analysis and interpretation.

Statistical Treatment of Data

The data that will be gathered from the results of the survey

questionnaires will be analyzed statistically using the following statistical tools

for accuracy of the outcomes:

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 37

1. Frequency and Percentage

This statistical treatment of the data will be used to arrange and tabulate

the respondents’ answer regarding their demographic profile in accordance

with SOP1.

A frequency distribution is a statistical tool that shows the distribution of

observations within a test in a visual format. To depict or illustrate the data

obtained in a sample, analysts generally utilize a frequency distribution (Young,

2022). Thus, the frequency and percentage is a very effective medium for

representing numerical data in the simplest way possible.

The equivalent percentage for each of the values are computed as follows:

Formula

% = ( ) 100

Whereas:

% = percentage

f = frequency

N = total number of respondents

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 38

2. Weighted Mean using 4-Point Likert Scale

In a weighted average, the final average number represents the

proportional value of each observation and is thus more descriptive than a

simple average. It also improves data accuracy by flattening it out.

This will be used to measure the respondents’ evaluation on the factors

considered by SMEs when obtaining loans from selected lending institutions as

provided in the SOP3.

Weighted mean computed by the following formula (Aquino, 2017).

Formula

TWF

WM = ( )

Whereas:

WM = weighted mean

TWF = total weighted frequency

N = total number of respondents

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 39

3. Pearson R

The Pearson correlation coefficient is a useful statistical calculation for

determining the strength of correlations between two variables. The Pearson R

test is the name given to this formula in the field of statistics. When performing

a statistical test between two variables, it's a good idea to calculate the Pearson

correlation coefficient value to see how strong the association is (McCallister,

2021).

Pearson R is computed as follows: (Ritesh, 2020).

Formula

Whereas:

N = the number of pairs of scores

Σxy = the sum of the products of paired scores

Σx = the sum of x scores

Σy = the sum of y scores

Σx2 = the sum of squared x scores

Σy2 = the sum of squared y scores

 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 40

REFERENCES

Aalbers, M.B. (2012). International Encyclopedia Of Housing And Home.

Sciencedirect. Retrieved March 28, 2022, From
Https://Www.Sciencedirect.Com/Topics/Social-Sciences/Payment-Scheme

Amuka, N., & Finnegan, G. (2014, November). The Effect Of Lending By

Micro Finance Institutions On The Financial Performance Of Small And Medium
Enterprises In Nairobi Coun. Uon Repository. Retrieved May 6, 2022, From
Http://Erepository.Uonbi.Ac.Ke/Bitstream/Handle/11295/75000/Oborah_the%
20effect%20of%20lending%20by%20micro-
Finance%20institutions%20on%20the%20financial%20performance%20of%2
0small%20and%20medium%20enterprises.Pdf?Sequence=3

Bolton, P., Freixas, X., & Gambacorta, L. (2013, July). No 417 -

Relationship And Transaction Lending In A Crisis. Bank For International
Settlements. Retrieved February 22, 2022, From
Https://Www.Bis.Org/Publ/Work417.Pdf

Carabelli, C. (N.D.). How Long Does Mortgage Processing Take?

Budgeting The Nest. Retrieved May 2, 2022, From
Https://Budgeting.Thenest.Com/Long-Mortgage-Processing-Take-30652.Html

Chowdhury, M., & Alam, Z. (2017). Factors Affecting Access To Finance

Of Small And Medium Enterprises (Smes) Of Bangladesh. Touro Scholar.
Retrieved May 22, 2022, From
Https://Touroscholar.Touro.Edu/Cgi/Viewcontent.Cgi?Article=1012&Context=
Gsb_pubs

Danganan, J. (2012). Dula And Grego Bombay 5-6 Imtfi Final Report.
Imtfi. Retrieved April 5, 2022, From
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 41

Https://Www.Imtfi.Uci.Edu/Files/Docs/2017/Dula%20and%20grego%20bomba
y%205-6%20imtfi%20final%20report.Pdf

Demerceau, J. (2019, March 5). Advantages & Disadvantages Of Bank

Loans. Small Business - Chron.Com. Retrieved May 6, 2022, From
Https://Smallbusiness.Chron.Com/Advantages-Amp-Disadvantages-Bank-
Loans-47377.Html

Dunn, M. (N.D.). Give Customers Payment Options - Business Payment

Plans. Entrepreneur. Retrieved May 4, 2022, From
Https://Www.Entrepreneur.Com/Article/204932

European Central Bank. (2016, November 2). What Is Collateral?

European Central Bank. Retrieved March 27, 2022, From
Https://Www.Ecb.Europa.Eu/Ecb/Educational/Explainers/Tell-
Me/Html/Collateral.En.Html

Furhmann, R. (2021, September 16). How Banks Set Interest Rates On

Your Loans. Investopedia. Retrieved March 28, 2022, From
Https://Www.Investopedia.Com/Articles/Investing/080713/How-Banks-Set-
Interest-Rates-Your-Loans.Asp

Githinji, C., Kiragu, D., & Kiai, R. (2019). International Journal Of

Economics, Business And Management Research. Effect Of Collateral
Requirement On Financial Performance Of Agribusiness Small And Micro
Enterprises In Nyeri Central Sub Count. Retrieved February 27, 2022, From
Https://Karuspace.Karu.Ac.Ke/Bitstream/Handle/20.500.12092/2211/Richard
%20m.%20kiai%2c.Pdf?Sequence=1&Isallowed=Y

Hirankasi, P. (2021, March 2). The Role Of Collateral In The Modern

Banking World. Krungsri. Retrieved March 27, 2022, From
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 42

Https://Www.Krungsri.Com/En/Research/Research-Intelligence/Ri-Collateral-
2021

Hofstrand, D. (2013, May). Types Of Term Loan Payment Schedules|

Ag Decision Maker. Iowa State University Extension And Outreach. Retrieved
March 27, 2022, From
Https://Www.Extension.Iastate.Edu/Agdm/Wholefarm/Html/C5-93.Html

Humphries, R. (N.D.). The “Bombay 5-6”: Last Resource Informal

Financiers For Philippine Micro-Enterprises. Kyoto Review Of Southeast Asia.
Retrieved March 27, 2022, From Https://Kyotoreview.Org/Issue-4/The-
Bombay-5-6-Last-Resource- Informal-Financiers-For-Philippine-Micro-
Enterprises/

Kagan, J. (2021, October 6). Commercial Bank Definition. Investopedia.

Retrieved April 4, 2022, From
Https://Www.Investopedia.Com/Terms/C/Commercialbank.Asp

Mckillop, D., French, D., Quinn, B., Sobiech, A. L., & Wilson, J. (2020,
May 18). Cooperative Financial Institutions: A Review Of The Literature. Ncbi.
Retrieved March 25, 2022, From
Https://Www.Ncbi.Nlm.Nih.Gov/Pmc/Articles/Pmc7233224/#__ffn_sectitle

Mehta, S. (2022, January 10). Credit Risk Mitigation - Financial Edge.

Financial Edge Training. Retrieved May 2, 2022, From
Https://Www.Fe.Training/Free-Resources/Credit/Credit-Risk-Mitigation/

Moore. (2017, September 26). How Long Does It Take To Close A

Commercial Loan? Abrigo. Retrieved March 28, 2022, From
Https://Www.Abrigo.Com/Blog/How-Long-Does-It-Take-To-Close-A-
Commercial-Loan/
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 43

New Approaches To Sme And Entrepreneurship Financing: Broadening

The Range Of Instruments. (2015). Oecd. Retrieved May 2 20, 2022, From
Https://Www.Oecd.Org/Cfe/Smes/New-Approaches-Sme-Full-Report.Pdf

Nitani, M., & Legendre, N. (2021, July). Cooperative Lenders And The
Performance Of Small Business Loans. Science Direct. Retrieved February 23,
2022, From
Https://Www.Sciencedirect.Com/Science/Article/Abs/Pii/S0378426621000832

Noble, L. W. (2021, December 24). Interest Rate Capped For Lending,

Financing Firms' Low-Value Loans. Businessworld Online. Retrieved March 29,
2022, From Https://Www.Bworldonline.Com/Banking-
Finance/2021/12/24/419550/Interest-Rate-Capped-For-Lending-Financing-
Firms-Low-Value-Loans/

Picardo, E. (2021, July 31). 4 Ways Simple Interest Is Used In Real Life.
Investopedia. Retrieved May 4, 2022, From
Https://Www.Investopedia.Com/Articles/Personal-Finance/101315/4-Ways-
Simple-Interest-Used-Real-Life.Asp

Owusu, I., & Adoley, N. (2014). The Impact Of Money Lending

Institutions On Small And Medium Enterprises: A Case Study Of Shalom
Lending Enterprise. Global Journals. Retrieved May 5, 2022, From
Https://Globaljournals.Org/Gjmbr_volume14/7-The-Impact-Of-Money-
Lending.Pdf

Potential Sources Of Financing For Small And Medium Enterprises

(Smes) And Role Of Government In Supporting Smes. (N.D.). Journal Of Small
Business And Entrepreneurship Development. Retrieved February 19, 2022,
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 44

From
Http://Jsbednet.Com/Journals/Jsbed/Vol_5_no_2_december_2017/4.Pdf

Potters, C. (2020, October 31). Financial Cooperative Definition.

Investopedia. Retrieved March 25, 2022, From
Https://Www.Investopedia.Com/Terms/F/Financial_cooperative.Asp

Prieg, L., & Greenham, T. (2014, February 15). Co-Operative Banks:

International Evidence. New Economics Foundation. Retrieved May 6, 2022,
From Https://Neweconomics.Org/2014/02/Co-Operative-Banks-International-
Evidence

Reasons Why Business Loans Are Financially Beneficial. (2021, May

25). Bajaj Finserv. Retrieved May 6, 2022, From
Https://Www.Bajajfinserv.In/Insights/Reasons-Why-Business-Loans-Are-
Financially-Beneficial

Sukmana, A. Et Al., "Design Concepts Smartcoop With Implementing

Financial Technology," 2017 5th International Conference On Cyber And It
Service Management (Citsm), 2017, Pp. 1-5, Doi:
10.1109/Citsm.2017.8089279.

The Benefits Of Long-Term Vs. Short-Term Financing. (N.D.). Prudential

Private Capital. Retrieved May 3, 2022, From
Https://Www.Prudentialprivatecapital.Com/Perspectives/The-Benefits-Of-
Long-Term-Vs-Short-Term-Financing

Top 5 Benefits Of Financing For Businesses And Customers. (2019,

June 17). Retrieved February 20, 2022, From
Https://Www.Financeit.Io/Benefits-Of-Financing/
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 45

Wanjere, D. (2020, December). International Journal Of Economics,

Commerce And Management United Kingdom Lending Technologies Of
Commercial Banks And Accessibility Of Finance By Small And Medium Size
Enterprises In Kakamega County, Kenya. Research Gate. Retrieved March 23,
2022, From Https://Www.Researchgate.Net/Profile/Dishon-
Wanjere/Publication/346680503_international_journal_of_economics_comme
rce_and_management_united_kingdom_lending_technologies_of_commercia
l_banks_and_accessibility_of_finance_by_small_and_medium_size_enterpris
es_i

What Is A Cooperative? | Ica. (N.D.). International Cooperative Alliance.

Retrieved April 4, 2022, From Https://Www.Ica.Coop/En/Cooperatives/What-Is-
A-Cooperative

What Is A Payment Scheme? (N.D.). Access To Payment Systems.

Retrieved March 27, 2022, From
Https://Www.Accesstopaymentsystems.Co.Uk/Introduction-Payment-
Systems/What-Payment-Scheme

What Is '5-6' And Why Should You Never Resort To Borrowing From
Shady Lenders? (2014, October 8). Ecomparemo. Retrieved April 5, 2022,
From Https://Www.Ecomparemo.Com/Info/What-Is-5-6-And-Why-Should-You-
Never-Resort-To-Borrowing-From-Shady-Lenders

West, & Noel. (2011). The Challenges To Sme Market Access In The
Philippines And The Role Of Business Associations. Apec-Canada Growing
Business Partnership. Retrieved May 21, 2022, From Https://Apfcanada-
Msme.Ca/Sites/Default/Files/2020-
07/The%20challenges%20to%20sme%20market%20access%20in%20the%2
0philippines%20and%20the%20role%20of%20business%20associations.Pdf
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 46

Zoleta, V. (2020, November 16). How To Invest In Cooperatives In The

Philippines – Grit Ph. Grit Ph. Retrieved March 29, 2022, From
Https://Grit.Ph/Cooperatives/

2017 Survey On Financing And Growth Of Small And Medium

Enterprises. (2021, April 19). Surveys And Statistical Programs - Survey On
Financing And Growth Of Small And Medium Enterprises. Retrieved May 22,
2022, From
Https://Www23.Statcan.Gc.Ca/Imdb/P2sv.Pl?Function=Getsurvey&Sdds=294
1
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 47

APPENDICES

APPENDIX A

SURVEY QUESTIONNAIRE

ENGAGEMENT OF LENDING INSTITUTIONS TO THE

FINANCIAL PERFORMANCE OF SELECTED SMES IN PASIG CITY

Part I: Demographic Profile

Email Address:
___________________________________________

Gender
 Female
 Male
Age
 20 years old and below
 21 - 30 years old
 31 - 40 years old
 41 - 50 years old
 51 years old and above

Highest Educational Attainment

 Elementary Undergraduate
 Elementary Graduate
 High School Undergraduate
 High School Graduate
 Vocational Courses/Trainings
 College Undergraduate
COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 48

 College Graduate
 Post-Graduate Studies

Nature of Business
 Manufacturing
 Merchandising
 Servicing

Years in the Business

 less than one year
 1-5 years
 6-10 years
 15-20 years
 Others please specify ________

Number of Employees
 1-19
 20-39
 40-69
 60-89
 81-99
 Monthly Sales/Income:
 500 below
 PHP 1000-PHP 2000
 PHP 3000-PHP 4000
 PHP 5000-PHP 6000
 PHP 7000-PHP 8000
 PHP 9000-PHP 9999
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 49

Part II: Most Preferred Lending Institution of SME Owners in Pasig City
Where do you usually acquire loans to finance your business?
 Banks
 Cooperative
 “Five-six” Lending

Part III: Factors Considered by SMEs When Obtaining Loans

Please state your level of agreement for the following statements:

(Answer options: Strongly Agree, Agree, Disagree, Strongly Disagree)

Strongly Agree Disagree Strongly

Accessibility Agree Disagree

1. Borrowers prefer
lending institutions
that allow them to
apply for loans
online.

2. Accessible locations
are highly preferable
among SMEs.

3. Getting a SMEs loan

should be hassle-
free.
COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 50

Strongly Agree Disagree Strongly

Collateral Agree Disagree

1. Collateral
guarantees that
the borrower
fulfills their
financial
obligations.

2. Ease of collateral
conditions is
highly preferable.

3. The availability of
adequate
collateral mitigates
the SMEs risk
factor.

Strongly Agree Disagree Strongly

Payment Scheme Agree Disagree

1. Compliance with
payment
transactions
increases credit
access.

2. Installment
payments are
highly preferable.

3. Payment
transactions are
made easier by
the availability of
financial
technology.
COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 51

Strongly Agree Disagree Strongly

Processing Time Agree Disagree

1. Borrowers demand
a faster
turnaround, so
three to six weeks
is an acceptable
timeline.

2. Borrower
satisfaction is
increased when
processing times
are shortened.

3. Getting a SMEs
loan should not be
time consuming.

Strongly Agree Disagree Strongly

Rate of Interest Agree Disagree

1. Low interest rates are

highly preferable.

2. The nominal interest

rate of 6% per month or
0.2 percent per day set
by the Bangko Sentral
ng Pilipinas is well
understood among
SMEs.

3. Despite the fact that

five-six (5-6)
moneylenders charge
a nominal interest rate
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 52

of 20%, SMEs regard

"five-six" as a last
resort.

IV. Effects of Lending Institutions to the Financial Performance of SMEs

Please state your level of agreement for the following statements:

(Answer options: Strongly Agree, Agree, Disagree, Strongly Disagree)

Strongly Agree Disagree Strongly

Effects of Agree Disagree
Lending Institutions

1. Accessible loans help

in improving
businesses’ cash flow.

2. Having access to loans

boosts businesses’
sales.

3. A lending institution
that is nearby delivers
lower miscellaneous
expenses.

4. Business
creditworthiness
improves when loans
are approved.

5. High amounts of
collateral may be
harmful to certain
businesses.

6. Lack of fixed
assets/collateralization
is a hindrance to SMEs'
 COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 53

access to capital from

lending institutions.

7. Short-term borrowing
allows for quick access
to funds and is better
suited to working
capital movements and
other ongoing
operational costs.

8. Reasonable repayment
plans help businesses
handle their debts more
profitably.

9. Low loan processing

costs are highly
preferable.

10. Higher interest rates

hinder borrowers from
taking out loans.

V. Effectiveness of Loans Provided by the Lending Institutions

Please state your level of agreement for the following statements:

(Answer options: Strongly Agree, Agree, Disagree, Strongly Disagree)

Strongly Agree Disagree Strongly

Effectiveness of Loans Agree Disagree

1. SMEs accepted
positive loan
contributions to boost
profits, stock, and
COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 54

sales, putting them in

a competitive position.

2. Loans' efforts to

extend their services

resulted in SMEs'

improvement and

development.

3. Loans are extremely

beneficial when it

comes to fulfilling

working capital needs

and expanding a

company.

4. Cooperative banks

earn more consistent

long-term profits,

provide better

customer service, and

enhance local

economies by lending
COLLEGE OF BUSINESS AND ENTREPRENEURIAL TECHNOLOGY

FINANCIAL MANAGEMENT DEPARTMENT 55

more to small and

medium-sized

enterprises.

5. Bank loans can be

used to finance

inventory and

equipment purchases,