Activity#1 BUSINESS FINANCE

BANK AND NON=BANKS FINANCIAL INSTITUTIONS

Ma. Angelica M. Teves ABM 12=C
Directions: Read and analyze the case below and answer the questions that follow. Write your answer on
a yellow sheet of paper.

The Business Partners

By: Aya
Two brothers are planning to establish a café restaurant. Bien is fond of coffee while Bryan is fond of
pastries. Both have contributed part of their savings but upon the assessment of the values, they need
more capital. The amount needed is Php 500,000.00, and they decided to divide it equally.

Bien plans to get a policy loan of Php 100,000.00 from his life insurance and apply from a
microfinance for the remaining. The requirement for both policy loan and microfinance is an application
form and agreement form. The effect on the policy loan is that it will reduce the amount of Bien’s life
insurance with the principal and interest. On the other hand, the microfinance has 3.5% interest rate per
month payable for 5 years.

Bryan has a 5-year real estate property costing Php 350,000.00 at par. He plans to take a loan of Php
500,000.00 from a bank, giving the title of his land as collateral. The bank has an interest rate of 9% per
annum, payable for 10 years.

Questions:

1. Is Bien’s loan application a wise decision? Why or why not?

Bien's loan application may not have been the best choice due to these risks and potential financial
instability. Bien's PHP 100,000 policy loan and subsequent microloan application pose financial risks,
as the policy loan reduces his life insurance coverage and may require substantial payments over
five-year period due to the high interest rate of 3.5% per month.
2. Is Bryan’s loan application a wise decision? Why or why not?
Given these risks, Bryan’s loan application may not have been the best choice. Bryan plans to borrow
PHP 500,000 from a bank over ten-year period at 9% interest rate, using his PHP 350,000 real estate
as security. However, real estate carries risks, including potential property repossessed in case of
default and large interest payments.
3. What can you suggest or advice the brothers about their loan plans? Explain your answer.
Bien and Bryan should explore alternative funding options like crowdsourcing, investors, or
government incentives for small businesses. They should seek professional guidance to evaluate
financing options and understand associated risks. A thorough business plan should be created to
detail costs, potential risks, and financial projections before proceeding with loan plans. This will help
determine their financial requirements and make informed decisions on financing their café
enterprise. Additionally, they should consider the long-term effects of their decisions.