How to start a lending business or company in the Philippines? Lending money to those who need it can be a profitable business.

With the proper management of your funds and control of risks involves in extending credit to borrowers, running such venture can give you favorable return of capital or investment. You can expect more people wanting to borrow money, amidst the economic crisis our nation is now facing. The credit industry has many players, such as banks, financing companies and other financial institutions. However, there are still specific markets which you can successfully target to extend your fund for lending. You just need to be strategic and prudent enough to ensure that your loans and receivables are reasonably collectible. Establishment, operation and regulation of lending companies in the Philippines are govern by the Republic Act No. 9474, known as the Lending Company Regulation Act of 2007. Moreover, lending companies are under the supervision and regulation of the Securities and Exchange Commission (SEC). Lending companies which are subsidiaries and affiliates of banks and quasi-banks is further subjected to BSP supervision and examination in accordance with Republic Act No. 7653. The following are the things you must know in starting a lending company in the Philippines. What is a lending company? Lending Company shall refer to a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than nineteen (19) persons. It excludes banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law. Lending companies are also synonymous with lending investors . Form of business or organization A lending company shall be established only as a corporation. Existing lending investors organized as single proprietorships or partnerships are disallowed from engaging in the business of granting loans to the public one year after the date of effectivity of RA No. 9474. Corporate name requirement The words Lending Company or Lending Investor or any other word descriptive of its primary activity of granting loans to the public except words commonly used to identify financing companies shall always be included in the corporate and trade name. Capital Requirement The minimum paid in capital of any lending company which may be established after the effectivity of this law shall be One million pesos (P1,000,000.00 The SEC may prescribe a higher minimum capitalization if warranted by circumstances . Should a branch, extension, satellite office or unit be established, the excess of the required minimum paid-up capital may be applied to the additional capital requirement for the proposed branch, extension, satellite office or unit, as follows: PhP300,000.00 : Metro Manila and other first class cities; PhP150,000.00 : Second class and other cities; PhP 75,000.00 : Municipalities Citizenship Requirements At least a majority of the voting capital stock shall be owned by citizens of the Philippines. The percentage of foreign-owned voting stock in any lending company existing prior to the effectivity of this RA9474, if such percentage is in excess of forty-nine percent (49%) of the voting stock, shall not be increased but may be reduced and, once reduced, shall not be increased thereafter beyond forty-nine percent (49%) of the voting stock of the lending company. The percentage of foreign-owned voting stocks in any lending company shall be determined by the citizenship of the individual stockholders. In the case of corporations owning shares in a lending company, the citizenship of the individual owners of voting stock in such corporations shall be the basis in the computation of the percentage. No foreign national may be allowed to own stock unless the country of which he is a national accords reciprocal rights to Filipinos. Requirements for Securing an Authority A lending company shall file with SEC four (4) copies of a duly accomplished application form to operate as a lending company, signed under oath by the President, together with the following documents in the prescribed form:

1. Information Sheet; 2. NBI clearance of each director/officer; 3. Foreign directors/officers, in addition to the NBI Clearance, shall submit a clearance from the Bureau of Immigration (BI), a photocopy of his passport showing a valid visa or stay in the Philippines, ACR i-card, and a work permit issued by the Department of Labor and Employment; 4. Presidents Sworn Statement and Undertaking that the corporation will not accept or solici t investments, other than loans, from more than 19 persons without SEC approval, and upon presentation of valid claims, it shall immediately indemnify or return the investments of persons from said unauthorized public solicitation of funds; Moreover, the sworn statement shall likewise contain an undertaking that the country or state of the foreign applicant allows Filipino citizens and corporations to do lending business therein. 5. For an existing lending investor applying for a Certificate of Authority, i t shall submit an external auditors sworn statement and undertaking that based on his/her examination of the corporate books of accounts and other related records of the corporation, it has not accepted or solicited investments, other than loans, from more than 19 persons without prior compliance with Sections 8 and 12 of the Securities Regulation Code and its Amended Implementing Rules and Regulations. 6. Business plan including method of marketing its product and sources of the funds and maturities of credit; and 7. Statement of its compliance with Rule 17.1(2)(A)(i) and (ii) of the Amended Implementing Rules and Regulations of the Securities Regulation Code. Requirements for branches, extension or satellites offices or units 1. Loan transactions shall be booked in the authorized offices of the lending company; 2. No lending company shall establish or operate a branch, extension office or unit or satellite office without prior approval by the SEC. The following documents shall be submitted for the opening of a branch office: a) Information Sheet on the proposed branch; b) NBI clearance of the manager, cashier and administrative officer of the proposed branch; 3. The Certificate of Authority to operate a branch, extension office, unit or satellite office shall be coterminous with that of the Head Office. Licensing Fees 1. Initial Application Fees shall be paid to SEC at the time of filing of application a) Head Office A fee of 1/10 of 1% of the paid-up capital of the lending company shall be paid for the issuance of a Certificate of Authority to Operate as a Lending Company. b) Branch, extension office, unit or satellite office A fee of 1/10 of 1% of the assigned capital of the branch, extension office, unit or satellite office shall likewise be paid for the issuance of an original Certificate of Authority. Annual fee An annual fee shall be paid not later than forty five (45) days before the anniversary date of the CA. 1) Head Office 1/8 of 1% of the required paid-up capital 2) Branch Office 1/8 of 1% of the required paid-up capital Commencement of Operations A corporation/company that has been duly registered and granted a Certificate of Authority to Operate as a Lending Company shall commence operations within one hundred twenty (120) days from date of grant of such authority. Failure to commence operations within said period shall be a ground for the suspension of its CA. Use of Funds Lending Companies shall use at least 51% of their funds for direct lending purposes. Investment to net worth ratio The total investment of a lending company in real estate and in shares of stock in a real estate development corporation and other real estate based projects shall not at any time exceed twenty-five (25%) percent of its networth.

Amount and Charges on Loans A lending company may grant loans in such amounts and reasonable interest rates and charges as may be agreed upon between the lending company and the debtor, provided, that the agreement shall be in compliance with the provisions of Republic Act No. 3765, otherwise known as the Truth in Lending Act and Republic Act 7394, otherwise known as the Consumer Act of the Philippines: Provided,further, That the Monetary Board, in consultation with the SEC and the industry, may prescribe such interest rate as may be warranted by prevailing economic and social conditions. In accordance with the Truth in Lending Act and prior to the consummation of the transaction, a lending company shall furnish each debtor a disclosure statement, setting forth, to the extent applicable, the following information: i. The principal amount of loan; ii. Rate of interest of the loan; iii. Service or processing fee, if any; iv. Amortization schedule; v. Any penalty charge for late amortization payment; vi. Collection fee, if any; vii. Notarial fee; viii. All other fees in connection with the loan transaction; ix. Description of the collection and lien enforcement procedures; and x. Method of calculating the total amount of obligation in case of default. Maintenance of Books of Accounts and Records Every lending company shall maintain books of accounts and records as may be required by the SEC and prescribed by the Bureau of Internal Revenue and other government agencies. In case a lending company engages in other businesses, it shall maintain separate books of accounts for these businesses. The Manual of Accounts prescribed by the BSP for lending investors shall continue to be adopted by lending companies for uniform recording and reporting of their operations, until a new Manual of Accounts shall have been prescribed by the Sec. It shall issue the appropriate instruments and documents to the parties concerned to evidence its lending and borrowing transactions.

Basics of the Lending Company Regulation Act of 2007 (RA 9474) Published by Atty. Fred December 10th, 2007 in Corporate and Investments. 0 Comments

On 22 May 2007, Republic Act No. 9474, also known as the Lending Company Regulation Act of 2007, was approved. The law is consistent with the delcared policy of the State to regulate the establishment of lending companies and to place their operation on a sound, efficient and stable condition to derive the optimum advantages from them as an additional source of credit; to prevent and mitigate, as far as practicable, practices prejudicial to public interest; and to lay down the minimum requirements and standards under which they may be established and do business. Heres a basic discussion of the new law:

What is a Lending Company?

It refers to a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than nineteen (19) persons. It shall not be deemed to include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law. The term shall be synonymous with lending investors.

What is the form of organization for a lending company?

A lending company shall be established ONLY as a corporation. Existing lending investors organized as single proprietorships or partnerships shall be disallowed from engaging in the business of granting loans to the public one year after the date of effectivity of the law. No lending company shall conduct business unless granted an authority to operate by the SEC.

What is the capital required for lending companies?

The minimum paid in capital of any lending company established under the law is One Million Pesos (P1,000,000.00). Existing lending companies established and in operation prior to the effectivity of this law shall comply with the required minimum capitalization within such time as may be prescribed by the SEC which time shall, in no case, be less than three years from the date of effectivity. The SEC may also prescribe a higher minimum capitalization if warranted by circumstances.

What is the citizenship requirement?

Upon the effectivity of the law, at least a majority of the voting capital stock shall be owned by citizens of the Philippines. The percentage of foreign-owned voting stock in any lending company existing prior to the effectivity of the law, if such percentage is in excess of forty-nine percent (49%) of the voting stock, shall not be increased but may be reduced and, once reduced, shall not be increased thereafter beyond forty-nine percent (49%) of the voting stock of the lending company. The percentage of foreign-owned voting stocks in any lending company shall be determined by the citizenship of the individual stockholders. In the case of corporations owning shares in a lending company, the citizenship of the individual owners of voting stock in such corporations shall be the basis in the computation of the percentage. No foreign national may be allowed to own stock unless the country of which he is a national accords reciprocal rights to Filipinos.

What are the prescribed amount and charges on loans?

A lending company may grant loans in such amounts and reasonable interest rates and charges as may be agreed upon between the lending company and the debtor. However, the agreement shall be in compliance with the provisions of Republic Act No. 3765, otherwise known as the Truth in Lending Act and Republic Act 7394, otherwise known as the Consumer Act of the Philippines. The Monetary Board of the Bangko Sentral ng Pilipinas, in consultation with the SEC and the industry, may prescribe such interest rate as may be warranted by prevailing economic and social conditions.

MANILA, Philippines - Companies and entities engaged in handing out loans are now required to be more prudent in lending to related parties.

In a memorandum dated April 8, the Securities a nd Exchange Commission (SEC) said it is requiring lending companies to comply with the single borrower limit and credit limit on DOSRI.

DOSRI refers to directors, officers, stockholders and their related interests.

The total credit that a lending company may extend to its directors, officers and stockholders shall not exceed 15 percent of its net worth, SEC said.

The Lending Company Regulation Act of 2007 defines a lending firm as a company engaged in granting loans from its own capita l funds or from funds sourced from not more than 19 persons.

It does not include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law.

Business ( Article MRec ), pagematch: 1, sectionmatch: 1

Specifically, loans and other credit extended by a lending company to specific entities will be deemed extended to its DOSRI: loans handed out to spouses or close relatives the loan compan ys officers, directors or stockholders; partnership in which a director or officer or stockholder of the lending company is a general partner; corporations where a director or officer or stockholder of the lending company is a director or officer of the debtor; corporations where more than 20 percent of its capital stock is owned by a director, officer of stockholder of the lending firm; and corporations wholly-or majority owned by entities.

Corporate regulators have put in place a mechanism to penalize erring lending firms.

Sample Computation
The sample computation is based on 3.5% fixed interest rate per month. Figures shown are based on the total monthly amortization. To get the exact amortization divide the monthly due depending on amenable terms, divide by 2 for semi-monthly and by 3 for trimonthly.

MONTHLY DUE

Loan Amount

3 Months

4 Months

5 Months

6 Months

7 Months

8 Months

P40,000.00 P50,000.00 P100,000.00 P150,000.00 P200,000.00 P250,000.00 P300,000.00

P 14,733.00 P 18,417.00 P 36,834.00 P 55,250.00 P 73,667.00 P 92,084.00 P 110,500.00

P 11,400.00 P 14,250.00 P 28,500.00 P 42,750.00 P 57,000.00 P 71,250.00 P 85,500.00

P 9,400.00 P 11,750.00 P 23,500.00 P 35,250.00 P 47,000.00 P 58,750.00 P 70,500.00

P 8,067.00 P 10,084.00 P 20,167.00 P 30,250.00 P 40,334.00 P 50,417.00 P 60,500.00

P 7,114.00 P 8,893.00 P 17,786.00 P 26,679.00 P 35,572.00 P 44,465.00 P 53,358.00

P 6,400.00 P 8,000.00 P 16,000.00 P 24,000.00 P 32,000.00 P 40,000.00 P 48,000.00

Example: Amortization schedule for 3 months to repay P 40,000.00 at 3.5%, semi-monthly Payment Amount Per Amortization 1st Amortization 1st Month 2nd Amortization 3rd Amortization 2nd Month 4th Amortization 5th Amortization 3rd Month 6th Amortization P 7,366.50 P 7,366.50 P 7,366.50 P 14,733.00 P 00.00 P 7,366.50 P 7,366.50 P 14,733.00 P 14,733.00 P 7,366.50 P 0.00 P 7,366.50 P 14,733.00 P 29,466.00 P 22,100.00 P 14,733.00 Total Monthly Due Bal Due Per Amortization P 36,833.00 P 29,466.00 Bal Due Per Month

Payment Number

Some individuals cannot borrow money from banks or credit unions and would pay a high interest to get a loan. Other individuals possess money and want to get some profits from it. A lending investor finds people with money and matches them with people who need money and are willing to pay a certain rate of interest for it. Unlike banks or credit unions, lending investors perform only one specific task: they lend money for profit. Lending investors also operate on a smaller scale, having a smaller capital base and operating within a particular limited area.

Some individuals can't get financing from conventional financial institutions when they need money for items such as real estate property, business inventory, and vehicles. Often, this is because they have credit scores that are too low for them to get conventional loan approvals. Lending investors usually have more lenient requirements when it comes to credit scores, allowing these individuals to access loans, albeit at higher interest rates. They also often personally know their clients because of their small territory, so they can use details such as the client's personality and circumstances to assess the risk of the loan. They also often offer faster processing so clients can get the money quicker.

A corporate lending investor does not take money deposits like banks do, so it actively looks for individuals with excess capital to invest. A lending investor usually requires that individual investors put in a certain minimum amount of money. Depending on the

company, investors might be able to obtain details about what the clients will use the money for and use the information to decide whether to go through with the investment.

As a safety measure for the individual investors, the lending investor sometimes promises a certain rate of return and secures the loan against the borrower's asset. A secured loan means that the lending investor can take over the borrower's asset if he or she fails to make loan repayments. For example, if the borrower wants to use the money to buy a property, the lending investor can secure the loan against that property. If the borrower can't repay the loan, the lending investor obtains the property so it can sell it and recover the money.

A lending investor gets profits from the fees and commissions it charges, including application fees, collection fees, insurance, and notarial fees. He often has small expenditures because of his limited area of coverage. Due to the small number of borrowers and investors, a lending investor can often afford to have a small office with basic office equipment operated by a handful of staff members.