3 Myths About Business Lending Debunked – Natural Self Esteem

THERE IS a common myth among Filipinos that if a company borrows money, it means the company will fail. “Maraming utang ‘yan,” some might say. But in reality, the companies that are approved for credit are actually the most profitable! After all, banks and other lenders have to make money too, and they can only do that by lending to companies that make enough profit to pay back the loan plus interest.

Some of the world’s fastest growing companies use credit to improve their services, expand into new markets, negotiate better prices with their suppliers, and more. So why are Filipinos so opposed to borrowing money? The simple answer is that most of us don’t understand credit and how it works. After all, when it’s being treated so shamefully, how could we talk about it?

So today I’m going to share three of the most common misconceptions about business credit I’ve learned during my time at First Circle.

Lower interest rates are always better

When looking at loan offers, most business owners will immediately ask about the interest rate and go for the lowest one, thinking it will cost the least. While interest rate is important, it only shows a small part of the bigger picture. It’s important to consider the total cost of the loan, aside from the interest you will be paying.

For example, did you know that the government offers subsidized loans at 0 percent interest but with a 6 percent processing fee? And it’s not just the government. Most lenders charge at least a few other fees, including a processing fee, a service fee, an early repayment fee, and more. These can add up quickly and, in some cases, cost more than the interest on your loan.

It is also important to consider the terms of the agreement and the potential costs involved. For example, if you need to take out a longer loan term to get a lower interest rate, you will likely end up paying a higher peso total at the end of your loan term. Another example is if you are offered lower interest rates by offering your home as collateral – is the risk of losing your home worth the lower interest rate? These are all important factors to consider when assessing the true cost of a loan.

You only need a business loan for large expenses

While business loans can definitely come in handy when buying new equipment, building a new office, or buying other big things, it’s important to remember that they can also be used to fill smaller cash gaps that end up taking a big toll from you demand business. Missed opportunities, operational nightmares, and unhappy customers are just a few of the things you could prevent if you had extra cash in your pocket.

With products like First Circle’s revolving line of credit, borrowing doesn’t have to be just a special occasion thing. Once you set it up, you can get cash in just two companies, at a price you know in advance and with loan terms you customize to suit your needs — it’s like having a credit card with a limit that is proportional to your company !

Banks are the only “legitimate” lenders

Banks offer many “legitimate” products, including business loans, but it’s no secret that unless you’re a major customer, traditional banking processes are often tedious and slow. Most people put up with it because they want to borrow from a trusted company, but the good news is that traditional banks aren’t the only trusted lenders out there!

For example, First Circle is an official partner of the SEC (Securities and Exchange Commission) and the DTI (Department of Trade and Industry) in providing credit to support the growth of SMEs (small and medium-sized enterprises). You could even borrow money directly from the government through projects like the DTI P3 Cares program. Even if you end up taking out a loan from a bank, it doesn’t hurt to understand what your options are in the first place – information is key when making a decision as important as choosing the right lending partner for your business!

You can also check the SEC’s website for a list of registered lending companies and registered online lenders to ensure you are dealing with a legitimate company.

It’s no secret that the world of finance and lending can be very confusing, but learning how to navigate it can really make or break your business. I hope this article has helped clear up a few things for you and made credit seem a little less intimidating. If you still have questions, just remember, there’s no harm in asking them. Our First Circle team will be happy to answer your questions and help you decide which loan product is right for you, or if you need one at all. As I mentioned at the beginning of the article, we only want to lend to companies that can grow with their credit.

Belli Caballeros is Digital Marketing Manager at First Circle. She has been helping digital-first brands grow their businesses since 2014 and is passionate about improving the financial prospects of everyday Filipinos.

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