Professional Documents
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BUSINESS FINANCE
Quarter 3 – Module 5
Loan Requirements of Bank
and Nonbank Institutions
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Thank you.
i NegOr_Q3_Business Finance12_Module
NegOr_Q3_Business 5_v25_v2
Finance12_Module
This module was designed to provide you with fun and meaningful opportunities for guided
and independent learning at our own pace and time. You will be enabled to process the contents of
the learning resource while being an active learner.
The module is intended for you to compare and contrast the loan requirements of the
different banks and nonbank institutions
.
’s In
Task 1
Direction: Take a look at the picture below. Answer the guide questions below.
Accomplish this in your notebook.
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?
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?
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
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.
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.
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.
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.
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.
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
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:
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
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.
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.
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://bit.ly/3GbQ27v
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.
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
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.
Reflection
Complete the following statements. Write your statements in your activity notebook.
3. Using the knowledge I have learned in this lesson, I will be able to..._______________________.