BANK AND NONBANK LOAN

REQUIREMENTS
This lesson talks about how a
company find sources of short-term or
long-term financing to support its
operations. These sources of funds can
come from BANKS or NONBANK
INSTITUTIONS.
At the end of the lessons, you should be
able to:
 identify the bank and nonbank
institutions in the vicinity that are
possible sources of funds, and
enumerate their requirements and
process for loan application
 compare and contrast the loan
requirements of the different
banks and nonbank institutions
and cite these institutions in the
locality
 The lesson will discuss about the
DIFFERENT LOAN REQUIREMENTS
OF BANKS and NONBANKS.
Therefore, knowing which is a bank or
nonbank may help you understand their
functions and what can they provide to
the businesses around you.
 BANKING
AND NONBANKING
INSTITUTIO
NS
 BANKS are financial institutions that accept
deposits from or offer loans to an individual or
entity.
Here are some examples of banks from the
website of Bangko Sentral ng Pilipinas
(www.bsp.gov.ph);
a. Banco De Oro (BDO)
b. Bank of the Philippine Islands (BPI)
c. Land Bank of the Philippines (LBP
NONBANKING INSTITUTION, on the
other hand, offers bank-like services but
cannot accept deposits due to absence of
banking license.
Examples of nonbanking institutions are
insurance companies, currency exchange,
microloan organizations and pawnshops.
INSURANCE COMPANIES offer transfer of
risk transactions. In the event of uncertain loss
of the business, insurance may cover
the loss for them. Government-owned insurance
providers are GSIS and SSS, and private
insurance providers like Sun Life,
Metrobank AXA, BPI PhilAm Life are listed in
the Insurance Commission
CURRENCY EXCHANGE is an industry
of buying and selling currencies.
Examples of financial institutions listed in
BSP Money Service Business are Western
Union, Cebuana Lhuillier, Mlhuillier,
Villarica Pawnshop and many other local
forex businesses
MICROLOAN ORGANIZATIONS are
lending companies or organizations that
usually offer small credits to individual
or business. These organizations help
small businesses to fund their short-
term finances with less requirements.
Examples of microloan organizations (also
called microfinancing) are the local
cooperatives and lending or semi- lending
companies like Home Credit, GCash,
Paymaya and the like. These companies are
found in the List of BSP Supervised
Electronic Money Issuers
PAWNSHOPS are institutions that offer
quick cash loans or “sanla”. The process
is too simple that a pawner offers a
collateral in the form of jewelry (gold,
silver, diamond and other precious metals
or stones) to loan money.
Examples of these pawnshops listed
in the BSP (List of BSP- Supervised
Pawnshops 2020) are Cebuana
Lhuillier, Mlhuillier, Palawan Express
and Villarica Pawnshop.
In the Philippines, the regulatory agency
governing the conducts of financial institutions,
whether bank or nonbank, is the Bangko
Sentral ng Pilipinas (BSP). BSP
regulates these financial institutions by
providing policy directions in the general use
of money, banking, and credit (BSP
Overview of Functions and Operations 2015).
Thus, bank protocols, especially on
information gathering of a client’s
personal and financial information, is
ruled by BSP abiding the rules of Anti
Money Laundering Act (AMLA).
Loan Requirements of
Banks and Nonbanking
Institutions
At some point, a BUSINESS may consider
finding an outsource of funds to finance its
operations. Depending on the amount needed,
business relies on financial institutions
whether banks or nonbanks, and this amount
of credits may require certain
requirements that can range from financial
statements, legal/personal documents, or/and
property collaterals.
BUSINESS LOANS can be used in
different purposes and whether these funds
are used for short-term or long- term. The
loan can be payable in longer terms,
example, up to 30 years. The range of
credit offered to a client can be as much
amount but will depend on the collateral
he/she submitted.
In banks, COLLATERALS are in the form
of real properties like land or house and lot.
The business may have to submit the land
title as a requirement. The purpose of the
loan should be clear because bank
requirements may differ from one purpose
to another.
Example of these purposes are for
franchising, purchase of new equipment,
expansion, or construction and for
establishing a new business. They may even
require business registrations, depending on
the type of business: single proprietor,
partnership, or corporation.
Banks assess more loan requirements
because they are more concerned with the
business’ capacity and ability to pay.
Collective term for these loan purposes is
Business Loan or Small- Medium
Enterprise (SME) Loan.
On the other hand, NONBANKING
INSTITUTIONS also provide loans but unlike
banks, they have lighter loan requirements.
They may offer flexible amounts to be
loaned with minimum to no collateral
acceptance. Under a microloan, for example, a
business may apply for a loan and be approved
onsite without the need to
disclose the purpose of taking the loan.
However, they have higher interest rates
compared to banks. They also have shorter
payable period. The worst can happen that
when a business fails, one can be indebted
under such big interest.
Whether loans are applied in banks or
nonbanks, a business’ financial structure
and planning should always be monitored.
Take loan amounts that are only necessary
for a project and assess the impact of
amortization payment to the business.
There are certain banks which also offer up
to P5M without collateral under certain
conditions and subject for approval. These
banking and nonbanking institutions have
different mechanisms on how to attract
potential clients.
Thus, background checking is a business’
preventive tool to minimize the risk of
falling into 5 deep interest payment.
Financial analysis, financial ratios and
budget preparations are some tools that can
help business utilize its funds wisely.
 LOAN
REQUIREMENTS
OF BANKS
 APPLICATION FORM – is the
details gathered in this form refers to
your personal data, income sources and
credibility.
 VALID PERSONAL IDENTIFICATION
DOCUMENTS – are supporting
documents that backup the data presented
in the application form.
IDs are classified as primary and
secondary, depending on the bank’s list
of IDs. Primary IDs usually are
government-issued, photo bearing ID.
 FINANCIAL STATEMENTS – is
usually presented to support credibility of
the entity applying for a loan. The
purpose of the loan and/or attractive
financial leverage can help ease the
application process.
 BANK STATEMENTS – are client
record of bank transactions which is
used to see the liquidity of cash flow of
the business.
 CERTIFICATE OF BUSINESS
REGISTRATION – refers to the overall
legality of the business organization and its
operations. Registration may come from
Bureau of Internal Revenue (BIR), Mayor’s
Permit, Department of Trade and Industry
(DTI), Securities and Exchange Commission
(SEC), to name a few.
 COMPANY PROFILE – may be
presented in business proposal form
indicating the profile of the business,
purpose of the loan, amount to be
loaned and/or the return projections.
 COLLATERAL DOCUMENTS -
include land title, tax declaration,
vicinity map, and special power of
attorney (if applicable).
 LOAN
REQUIREMENTS
FOR NON-BANKING
INSTITUTIONS
 APPLICATION FORM – refers to
your personal data, income sources
and credibility.
 VALID PERSONAL IDENTIFICATION
DOCUMENTS – are IDs required in
nonbanking institutions which are
classified into primary and secondary
which usually require more
identification requirements in loans of
big amounts.
 CREDIT
INFORMATION/COLLATERAL
FILE – are documents offered by
the
client submitted to and held by a
Custodian.
 CREDIT INVESTIGATION – may be
required to determine the credit
standing of the applicant and the fair
market value of the collateral being
offered.
 As seen in the flow chart, a borrower
will accomplish an application form which
contains personal and business details.
Upon submission, the creditor will
conduct an interview for a background
check to an applicant regarding his/her
credibility, capacity, and ability to pay.
The creditor will request additional
requirement, if applicable. If requirements
are met and the application is of good will,
the creditor will approve the loan or will
be declined if otherwise.
SUMMARY:
 A Banking Financial Institution
(BFI) is a financial
intermediary licensed to receive deposits
and make loans and may also provide
financial services such as wealth
management, currency exchange, and safe
deposit boxes.
 A Non-bank Financial Institution
(NBFI) is a financial institution that
does not have a full banking license or
is not supervised by a national or
international banking regulatory
agency. It also provides banking
services but is not allowed to take
deposits from the public.
 A LOAN is the lending of money to
another party in exchange for repayment
while LOAN REQUIREMENTS are the
documents that provide the essential
financial and other information about the
borrower on which the lender bases the
decision to lend.
 SHORT-TERM LOAN is a debt
scheduled to be paid within a year
while LONG-TERM LOAN is a
debt to be paid in more than a
year.
5C’S OF CREDIT - the institution’s
primary consideration in approving
loan applications are:
 CHARACTER – the willingness of
the borrower to repay
the loan
 CAPACITY – a customer’s ability to
generate cash flows
 COLLATERAL – security pledged for payment
of the loan
 CAPITAL – a customer’s financial resources
 CONDITION – current economic or business
ALWAYS REMEMBER
 Loanrequirements of an individual or a
business may also vary depending on the
standards and needed documents of a
certain lending institution. Even the loan
application process may also differ from
one bank/nonbank institution to another.
SAMPLE 1. The table below shows a
comparison on the different requirements
needed for salaried employee’s personal
loan application to a certain banking and
nonbanking institution.
SAMPLE 2. The table below shows a
comparison on the different requirements
needed for business loan application to a
certain banking and nonbanking
institution.
EXERCISE 1.
Directions: Classify as BANK or
NONBANK the following financial
intermediaries.
EXERCISE 2.
Directions: Study and analyze well the
given loan requirements in the box below.
Identify and match the requirements that are
used to evaluate each of the 5C’s of credit or
loan. Write your answer on the space
provided for in the table
EXERCISE 3.
Directions: Using the Venn Diagrams shown
below, compare and contrast the various
loan requirements for Personal Loan
(Exercise 3A) and Business Loan (Exercise
3B) between Banco De Oro or BDO and
MLHUILLIER Financial Services. Refer to
Sample 1 and Sample 2 on page 2 of
this activity sheet
EXERCISE 4.
Directions: Read and analyze well the
case presented below and identify the
needed information to be used in analyzing
the 5C’s of Credit for the loan
application of Mr. Bawhal Luhmavas.
This is a sample application form for business
loan in Filipino Bank. Directions: Fill out the form
with the following details.
a. Assume any type of business of your
choice, create its name, address, mobile
number, and email address.
b. You are a one-year existing client of
Filipino Bank since January 1, 2018, with
payroll account 523-54897 and an
outstanding balance of Php 150,000.00.
c. It is a family business, a single proprietor,
and 3 years in operation. You have
5 employees.
d. Tax Identification Number of the business is
404-143-877-001.
e. The past year’s net income is Php
300,000.00.
f. It is your first time to apply for a loan. The
amount you plan to loan is Php 500,000.00
ACTIVITY:
In today’s technology, financial institutions
also make use of online banking systems.
Transfer of funds and loan applications are
more accessible. They also have interactive
websites where clients can compute loan
proceeds and amortization or ask for
requirements for SME loan.
 BANK LOAN REQUIREMENTS
Directions: Make use of a bank’s
website and search for loan
requirements. Select a bank and list
their requirements. Write your answers
on a separate sheet of paper. (5 points)
 NONBANK LOAN REQUIREMENTS
Directions: Make use of a nonbank’s
website and search for loan
requirements. Select one nonbanking
entity and list their requirements or
process. Write your answers on a
separate sheet of paper. (5 points)
WRITTEN WORK:
Directions: Read and analyze the case
below and answer the questions that
follow. Write your answer on a separate
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. 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?
2. Is Bryan’s loan application a wise
decision? Why or why
not?
3. What can you suggest or advice the
brothers about their loan plans?
Explain