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Lend Me A Dream

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It happened in the ‘50s.

A 30-year old entrepreneur in the buy and sell business of fruits and vegetables; second-hand clothes, and old newspapers and magazines saw an opportunity in cornstarch manufacturing.

Hoping to take advantage of the post-war economic boom, he applied for a loan but was turned down. Fortunately, another bank lent him P500,000.00 to finance his first industrial venture.

The young man’s name: John Gokongwei

These days, what are the chances of a small entrepreneur of having a business loan approved?

To give you a better understanding of the credit risk evaluation process, Plantersbank Senior Vice President for Account Management Maria Agnes “Aggie” Angeles shares the 4 Cs of credit:

Character of owner
Cash Flow

According to her, “Corporate philosophy and values play an important role in credit. Entrepreneurs who value their people and are in business for others are not the type to run away during a crisis.”

She elaborates, “These businessmen fuel the growth of their towns and provinces and are out to create strong national brands. A lot of them are working with the good of the country in mind,” citing Splash Manufacturing, Barrio Fiesta and Tentay Patis as examples.

These big companies started out as family businesses. As such, it was easy for the bank to talk about the owners’ plans and goals, “We were able to validate what was in the business plan with what came from their heart during our meetings.”

That is why the bank is considered a private, close-in partner.

Most banks, however, make it a policy not to over-lend money. “We are very cash flow-driven. As in every business, we assess if the investment decision is valid and whether we are assured of recovery. Debt should not exceed 30% of cash flow. Would you like it if your partner got 70% of what you earn?”

But like it or not, extra capital to buy new equipment or provide a second wind in stabilizing operations, is a requisite move towards business expansion.

Ms. Angeles affirms that long-term lending definitely requires real-estate collateral. “It’s a form of moral control by the bank. When collateral is at stake, it drives clients to spend their loan wisely.” Clients however are not required to put up 100% real estate if they qualify for a guarantee program.*

Plantersbank provides a credit line to gap seasonal needs, like Christmas and back to school emergencies. This type of loan is usually payable in a year’s time. Beyond that, various kinds of special financing agreements or term loans with deferred payment or fixed rates available payable over a longer period of time.

While priority is given to the depositors of Plantersbank, even walk-in customers are entertained and given the benefit of pre-qualification. “All SMEs can avail of our advisory services. The application process actually takes only 2 weeks but we’ve had clients consult with us for over a year to finetune day-to-day implementation of business plans before getting credit,” she declares.

To minimize the credit risk, Ms. Angeles maintains her three important considerations: “The applicant must have at least three years business experience, integrity and no adverse credit record.”

Three years is deemed a good indicator for evaluating whether a business is sound. “Like a child who is past the toddler phase, a company that's been around this long can already run and defend itself, she explains."

So if you feel up to the challenge, go ahead and arrange for bank financing. After all, even tycoons were once small entrepreneurs who dared to dream. With hard work, dedication, and a little help from your SME-friendly bank, you too can make your dream come true.

*SB Corporation for domestic business, TIDCORP for export-Oriented business, HIGC for small and medium housing developers

Source: Business Line Vol. 1 No. 2 2003

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