Financing Companies Defined

Finance companies are organizations offering loan benefits or credits to individuals

and/or businesses. These companies are required to be registered as a corporation
under the Securities and Exchange Commission. These companies are supposed to
secure the a legitimate certificate of registration from SEC. Finance companies which
are subsidiaries of banks or non-bank financial institutions with quasi banking license
are regulated and monitored by the Bangko Sentral ng Pilipinas.

Financing companies are corporations, except banks, investments houses, savings and
loan associations, insurance companies, cooperatives, and other financial institutions
organized or operating under other special laws, which are primarily organized for the
purpose of extending credit facilities to consumers and to industrial, commercial, or
agricultural enterprises, by direct lending or by discounting or factoring commercial
papers or accounts receivable, or by buying and selling contracts, leases, chattel
mortgages, or other evidences of indebtedness, or by financial leasing of movable as
well as immovable property (Sec. 3. of Republic Act No. 8556 known as the Financing
Company Act of 1998).

Rights and powers of financing companies

According to Section 9 of the Republic Act No. 8556 known as the Financing Company
Act of 1998, financing companies shall have the following powers in addition to those
granted by this Act and by other laws:

(a) Engage in quasi-banking and money market operations with the prior approval of the
Bangko Sentral ng Pilipinas;

(b) Engage in trust operations subject to the provisions of the General Banking Act upon
prior approval by the Bangko Sentral ng Pilipinas;

(c) Issue bonds and other capital instruments subject to pertinent rules and regulations
of the Bangko Sentral ng Pilipinas;

(d) Rediscount their paper with government financial institutions subject to relevant
laws, rules and regulation;

(e) Participate in special loan or credit programs sponsored by or made available

through government financial institutions; and

(f) Provide foreign currency loans and leases to enterprises who earn foreign currency
by exports or other means, subject to existing laws and rules and regulations
promulgated by the Bangko Sentral ng Pilipinas.

Registration of financing companies

The following are the requirements to form a financing company in the Philippines.

Form and ownership of organization

Financing companies shall be organized in the form of stock corporations at least forty
percent (40%) of the voting stock of which is owned by citizens of the Philippines.
Moreover, no foreign national may be allowed to own stock in any financing company
unless the country of which he is a national accords the same reciprocal rights to
Filipinos in the ownership of financing companies or their counterpart entities in such
country (Sec. 6 RA No. 8556)

Capital requirements

Shall have a paid-up capital of not less than Ten million pesos (P10,000,000) in case
the financing company is located in Metro Manila and other first class cities, Five million
pesos (P5,000,000) in other classes of cities and Two million five hundred thousand
pesos (P2,500,000) in municipalities (Sec. 6 RA No. 8556).

Name requirement

The corporate name of financing companies shall contain the term “financing
company”, “finance company”, or finance and investments company” or other title or
word(s) descriptive of its operations and activities as a financing company.

Registration papers to be submitted to the SEC

Any stock corporation may be registered as a financing company by filing with the
Commission five (5) copies of an application to operate as a financing company under
R.A. 8556, signed under oath by its President, together with the following documents in
the prescribed forms:

1. All documents required for the registration as a corporation;

2. Information Sheet of registrant company;

3. Personal Information Sheet of each the directors, officer with the rank of Vice
President and up of the equivalent managing partners;

4. Answer to the questionnaire of the Commission;

5. Documents required of each Filipino director, officer t be appointed from the rank of
Vice-President and up or their equivalent, such as the following:

(i). Police clearance from local police of the city or municipality of which he is a resident;

(ii). NBI clearance;

(iii). Certificate of good moral character to be executed under oath at least (2) reputable
and disinterested persons in the community; and

(iv). Bank credit information to be issued by his depository or creditor banks(s), if any;

In lieu of Items (ii) and (iii), a foreign director or officer shall submit a clearance from the
Bureau of Immigration and Deportation and photocopies of passport and Alien
Certificate of Registration (ACR).

6. Clearance from the Bangko Sentral ng Pilipinas, if the applicant financing company is
a subsidiary or affiliate of a bank and/or non-bank financial institution with quasi-banking
license.

7. Such other documents as may be required by the Commission;

For other requirements, such as the prescribed period to commence the operation,
requirements for branches (agency or extension offices), other capital requirements,
reportorial requirements, licensing fees, fines for failure to comply with the this act or
other applicable laws and other requirements, please download and read the copies of
the following:

Republic Act No. 8556 known as the Financing Company Act of 1998

Rules and Regulations to Implement the Provisions of Republic Act no. 8556 (The
Financing Act of 1998)
Primary Functions of Financing Companies

Some finance companies lend to consumers, while others make loans to businesses or
finance the sales of manufacturers' products to customers. Because they do not take in
deposits from the public, they are not classified as banks, and they are not subject to
the strict banking regulations. Finance companies that engage in commercial credit
activities base their loans on the value of the assets that borrowers pledge as security.
Finance companies obtain funds for lending through their own borrowing or from parent
corporations.

Personal Loans

People who are unable to obtain loans or financing from banks may qualify at a finance
company. The types of available consumer loans include second mortgages, loans for
purchasing used automobiles, home improvement or debt consolidation. All loans must
be secured by tangible personal assets. Loans from finance companies are more costly
than bank loans, but sometimes finance companies are more accommodating.

Asset-Based Loans

Commercial finance companies lend to businesses based on pledged assets.

Customers are typically rapidly growing businesses that have assets to pledge as
collateral but are low on cash. Such assets include accounts receivable, inventory and
equipment. In case of default, the lender takes possession of the assets. An example is
a garment manufacturer who has a contract from a reputable retailer. The manufacturer
pledges the account receivable, borrows the funds needed to begin manufacturing and
repays the loan from collections.

Factoring

Factoring is a more expensive variation on asset-based lending. In this case, a small,

fast-growing manufacturer may not have sufficient credit and is selling to multiple
customers. The manufacturer sells its accounts receivable to the lender in return for
approximately 80 percent of the value of the receivables. The manufacturer receives the
rest of the funds upon collection, less the lender's fees.

Installment Loans

Merchants that offer installment payment plans for sales of items such as large
appliances use contracts from finance companies. The financing can usually be
approved over the phone while the customer is in the store. In other cases, such as new
car sales, the dealer seeks financing approval for his customer by contacting the
manufacturer's finance subsidiary. An example of this type of finance company is Ford
Motor Credit.
Difference between Financing Companies and Banks

Banks and finance companies are both considered financial institutions, meaning they
accept money from customers or investors, then use that capital to make loans. Both
are heavily regulated, and both can fail if they run out of money or fall victim to
mismanagement or fraud.

Licensing and Services

To call itself a “bank,” a financial institution must obtain a state banking license. This
license allows a bank to provide services such as setting up checking accounts and
issuing debit cards, arranging for wire transfers with other institutions, and serving as an
intermediary for interstate and international transactions.

Finance companies provide many of the some of the same services as banks, including
auto financing and home loans, retirement planning and underwriting. But they don’t
generally accept deposits.

Risk Level

Banks and finance companies are both considered “direct lenders,” meaning their
analysts review your loan application, then decide whether to approve it. However,
some finance companies are generally willing to accept a higher level of risk, meaning
they are more likely to approve loans for customers who may have had past credit
issues.

This doesn’t mean finance companies are reckless or poorly managed. It just means
they are comfortable with a higher level of risk, which allows them to serve a larger
market.

Specialization

A key advantage to partnering with a finance company is that it is more likely to be

specialized. Most banks serve a wide range of customers, businesses, and other
interests.
The Main Sources & Uses of Funds for Finance Companies

On the surface, finance companies work much the same as banks do. Clients apply for
loans, credit or lease financing and are charged interest for the money they receive.
Below the surface, however, finance companies are quite different. Much of this is due
to the fact that finance companies can't accept deposits, like banks do whenever
someone opens a savings account, so they have to get their money elsewhere.
Additionally, finance companies normally specialize in a specific market. Where the
money that's borrowed from a finance company is used depends on which market it
specializes in.

How Finance Companies Finance Loans

When you borrow money from a bank, the bank can use the money other people have
deposited to finance your loan. Finance companies can't accept deposits, so they don't
have this option. Instead, the finance company borrows money itself to finance the
money it is giving you, like by offering corporate bonds or other types of loans. As long
as the interest the finance company pays on its loans is less than the rates it charges its
customers, it can make a profit.

Pros and Cons of No-Deposit Lenders

Because finance companies carry a lot of debt and don't have the ability to accept
deposits as banks do, they generally need to carry a lot of equity in order to prove their
solvency to investors and creditors. On the other hand, the inability to accept deposits
also means that they are less regulated than banks. Overhead is also lower. Because
finance companies typically specialize in their own market, often, they can take on
somewhat riskier debts than a bank can.

Types of Finance Companies

There are basically three different kinds of finance companies: sales-based companies,
business credit and personal credit companies. Sales-based finance companies lend
money to customers of specific retailers or other companies, like General Motors
Acceptance Corporation (GMAC), which lends money to GM customers buying its
vehicles. Business credit companies provide financing to companies, such as a
company that is leasing computers or office equipment, and factoring. Factoring is when
the finance company buys outstanding accounts receivable at a discount from other
companies, with the intention of collecting those debts. Personal credit companies offer
loans and leases to consumers, such as people who are buying furniture on credit, or
buying a used car.
Emerging Trends in Financing

For the past several years, tech companies have been having a significant impact on
many different industries, and have been changing how business is conducted. The
finance sector has been no exception. One example of this is the emergence of peer-to-
peer financing. People and companies can now borrow and lend each other money at
virtually no cost, usually through an app or a website. Because overhead is extremely
low, investors can get a good return on their money, while borrowers are charged
relatively low interest rates. In this scenario, the app's users are the source of funds and
the recipients of the loans.
Governing Laws of Financing Companies
REPUBLIC ACT NO. 8556

AN ACT AMENDING REPUBLIC ACT NO. 5980, AS AMENDED, OTHERWISE

KNOWN AS THE FINANCING COMPANY ACT

Section 1. This Act shall be known as the "Financing Company Act of 1998."
Sec. 2. Declaration of Policy. — It is hereby declared to be the policy of the State to
regulate and promote the activities of financing and leasing companies to place their
operations on a sound, competitive, stable and efficient basis as other financial
institutions, to recognize and strengthen their critical role in providing medium and
long-term credit for investments in capital goods and equipment especially by small
and medium enterprises particularly in the countryside and to curtail and prevent acts
or practices prejudicial to the public interest so that they may be in a better position to
extend efficient service in a fair manner to the general public and to industry,
commerce and agriculture and thereby more fully contribute to the sound
development of the national economy.

Sec. 3. Sec. 3 of the same Act is hereby amended to read as follows:

Sec. 3. Definition of Terms. — As used in this Act, the term:
"(a) 'Financing companies' hereinafter called companies, are corporations, except
banks, investments houses, savings and loan associations, insurance companies,
cooperatives, and other financial institutions organized or operating under other
special laws, which are primarily organized for the purpose of extending credit
facilities to consumers and to industrial, commercial, or agricultural enterprises, by
direct lending or by discounting or factoring commercial papers or accounts
receivable, or by buying and selling contracts, leases, chattel mortgages, or other
evidences of indebtedness, or by financial leasing of movable as well as immovable
property;

"(b) 'Securities and Exchange Commission' shall mean the office of the Securities
and Exchange Commission of the Philippines;

"(c) 'Credit' shall mean any loan, mortgage, financial lease, deed of trust, advance or
discount, any conditional sales contract, contract to sell, or sale or contract of sale of
property or service, either for present or future delivery, under which, part of all or the
price is payable subsequent to the making of such sale or contract; any contract, any
option, demand, lien or pledge, or to the other claims against, or for the delivery of,
property or money, any purchase, or other acquisition of or any credit upon the
security of, any obligation or claim arising out of the foregoing, and any transaction or
series of transactions having similar purpose or effect;
"(d) 'Financial leasing' is a mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the instance of the lessee,
machinery, equipment, motor vehicles, appliances, business and office machines,
and other movable or immovable property in consideration of the periodic payment by
the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of
the purchase price or acquisition cost, including any incidental expenses and a
margin of profit over an obligatory period of not less than two (2) years during which
the lessee has the right to hold and use the leased property with the right to expense
the lease rentals paid to the lessor and bears the cost of repairs, maintenance,
insurance and preservation thereof, but with no obligation or option on his part to
purchase the leased property from the owner-lessor at the end of the lease contract.

"(e) 'Purchase discount' is the difference between the value of the receivable
purchased or credit assigned, and the net amount paid by the finance company for
such purchases or assignment, exclusive of fees, services, charges, interest and
other charges incident to the extension of credit.

"(f) 'Lease rentals' shall refer to the periodic payments made by the lessee to the
lessor under Sec. 3(d), above."

Sec. 4. Sec. 4 of the same Act is hereby amended to read as follows:

"Sec. 4. Grant of Authority to Securities and Exchange Commission. — The
Securities and Exchange Commission is hereby empowered to enforce the
provisions implementing regulations except insofar as the Bangko Sentral may have
supervisory authority under the provisions of Republic Act No. 7653 with respect to
financing companies licensed to perform quasi-banking functions, and insofar as the
Monetary Board has authority to prescribe financing company rates and charges
under Sec. 5 hereof."

Sec. 5. Sec. 5 of the same Act is hereby amended to read as follows:

"Sec. 5. Limitation on purchase discounts, lease rentals, fees, service and other
charges. — The Monetary Board of the Bangko Sentral ng Pilipinas is hereby
empowered to prescribe, in consultation with financing companies and the Securities
and Exchange Commission, the maximum rate or rates of purchase discounts, lease
rentals, fees, service and other charges of financing companies, and to change,
eliminate or grant exemptions from or suspend the effectivity of such rules whenever
warranted by prevailing economic and social conditions."

Sec. 6. Sec. 6 of the same Act is hereby amended to read as follows:

"Sec. 6. Form of organization and capital requirements. — Financing companies shall
be organized in the form of stock corporations at least forty percent (40%) of the
voting stock of which is owned by citizens of the Philippines and shall have a paid-up
capital of not less than Ten million pesos (P10,000,000) in case the financing
company is located in Metro Manila and other first class cities, Five million pesos
(P5,000,000) in other classes of cities and Two million five hundred thousand pesos
(P2,500,000) in municipalities: Provided, however, That no foreign national may be
allowed to own stock in any financing company unless the country of which he is a
national accords the same reciprocal rights to Filipinos in the ownership of financing
companies or their counterpart entities in such country: and Provided, further, That
financing companies duly existing and in operation before the effectivity of this Act
shall comply with the minimum capital requirement within one (1) year from the date
of the said effectivity."

Sec. 7. Sec. 7 of the same Act is hereby amended to read as follows:

"Sec. 7. Requirement for registration. — Aside from requiring compliance with the
provisions of the Corporation Code, the Securities and Exchange Commission shall
not register the articles of incorporation of any financing company unless its office is
satisfied on the evidence submitted to it, that:

"(a) All the requirements of existing laws to engage in the business for which the
applicant is proposed to be incorporated or organized have been complied with;

"(b) The organization, direction and administration, as well as the integrity and
responsibility of the organizers and administrators reasonably assure the protection
of the interest of the general public;

"(c) All the requirements of this Act have been complied with: Provided, That
financing companies duly incorporated or registered prior to the approval of this Act,
and which are actually existing and operating as such, shall file an information sheet
with the Securities and Exchange Commission in the form to be prescribed by the
Securities and Exchange Commission within sixty (60) days after notice from the said
Commission. No person, association, partnership, or corporation shall hold itself out
as doing business as a 'financing company' or 'finance and investment company' or
any other title or name tending to give the public the impression that it is engaged in
the operations and activities of a financing company, unless so authorized under this
Act."

Sec. 8. Sec. 8 of the same Act is hereby repealed.

Sec. 9. Sec. 9 of the same Act is hereby renumbered as Sec. 8.
Sec. 10. There is hereby inserted after Sec. 8 as renumbered, new Sec.s 9, 10, 11,
12 and 13 to read as follows:

"Sec. 9. Rights and powers. — Financing companies shall have the following powers,
in addition to those granted by this Act and by other laws:

"(a) Engage in quasi-banking and money market operations with the prior approval of
the Bangko Sentral ng Pilipinas;
"(b) Engage in trust operations subject to the provisions of the General Banking Act
upon prior approval by the Bangko Sentral ng Pilipinas;

"(c) Issue bonds and other capital instruments subject to pertinent rules and
regulations of the Bangko Sentral ng Pilipinas;

"(d) Rediscount their paper with government financial institutions subject to relevant
laws, rules and regulation;

"(e) Participate in special loan or credit programs sponsored by or made available

through government financial institutions; and

"(f) Provide foreign currency loans and leases to enterprises who earn foreign
currency by exports or other means, subject to existing laws and rules and
regulations promulgated by the Bangko Sentral ng Pilipinas.

"Nothing in this Sec. shall be construed as precluding a financing company from

performing such services or exercising such powers as may be granted by the
Bangko Sentral ng Pilipinas or the Securities and Exchange Commission or as may
be incidental to its activities as a corporation.

"Sec. 10. Applicability of incentives and exemptions to financial leases. — Any

incentive, exemption or benefit, including tax credits and investment incentives
granted by law or regulation to any purchaser, importer, borrower or other eligible
person in connection with any purchase, importation, acquisition, or other transaction
shall not be lost, diminished or impaired when the associated financing is through a
financial lease rather than through borrowing or other conventional method of
financing. Financing companies providing the financial lease in such cases shall be
entitled to any incentive, exemption, benefit or privilege available to lenders,
importers, purchasers or other eligible person in such transactions under the
applicable law or regulation.

"Sec. 11. Parity clause. — When providing medium and long-term credit to small and
medium enterprises, financing companies shall enjoy such other rights, powers,
benefits and privileges as may be granted by the law or regulation to other non-bank
financial institutions when they provide similar credit to such enterprises."

"Sec. 12. Liability of lessors. — Financing companies shall not be liable for loss,
damage or injury caused by a motor vehicle, aircraft, vessel, equipment, machinery
or other property leased to a third person or entity except when the motor vehicle,
aircraft, vessel, equipment or other property is operated by the financing company, its
employees or agents at the time of the loss, damage or injury.

"Sec. 13. Registry of financial lease. — The Register of Deeds shall open and
maintain a register of financial leases, as an adjunct to the chattel mortgage registry.

"Said lease register shall contain the following particulars:

"(1) Persons, associations, partnerships or corporations, including the managing
officer thereof, that shall:

"(a) Engage in the business of a financing company without authority from the
Securities and Exchange Commission;

"(b) Hold themselves out to be financing companies, either through advertisement in

whatever form, whether in its stationery, commercial paper or other document, or
through other representations without authority;

"(c) Make use of trade or firm name containing the words 'Financing Company' or
'Leasing Company' or 'Finance and Leasing Company or 'Finance and Investment
Company' or any other designation that would give the public the impression that it is
engaged in the business of a financing company or leasing company as defined in
this Act without authority; and

"(d) Violate the provisions of this Act.

"(2) Any officer, employee, or agent of a financing company who shall:
"(a) Knowingly and willingly make any statement in any application, report or
document required to be filed under this Act, which statement is false or misleading
with respect to any material fact; or

"(b) Overvalue or aid in overvaluing any securities for the purpose of influencing in
any way the action of the company on any loan, or discounting line.

"(3) Any officer, employee or examiner of the Securities and Exchange Commission
directly charged with the implementation of this Act who shall commit, connive, aid or
assist in the commission of acts enumerated under subSec.s 1 and 2 of this Sec.."

Sec. 12. Sec.s 11 and 12 of the same Act are hereby renumbered as Sec.s 15 and
18, respectively.

Sec. 13. Effectivity. — This Act shall take effect fifteen (15) days following the
completion of its publication in the Official Gazette or in two newspapers of general
circulation.

Approved: February 26, 1998

Top 10 Financing Companies with Certificate Authority as of December 31, 2018

FINANCING COMPANY NAME

1 1 2 3 FINANCE CORPORATION

2 1109 Nikkia Financing Inc.

3 168 LEGRAND FINANCING CORPORATION

4 216 BAYAN FINANCING COMPANY INC.

5 24 - 25 FINANCE CORP.

6 2-M POWER FINANCING CORP.

7 3 CENTS FINANCING CORPORATION

8 4D FINANCE CO., INC.

9 7R FINANCE CORP.

10 88 ASIA FINANCE CORPORATION

1. 1 2 3 FINANCE CORPORATION
 OFW Loan/Seaman Loan- The requirements are very simple and easy. If you have a
contract for employment and can provide a suitable co-maker we can in most cases
approve your loan.
 Salary Loan- Salary loan is intended for clients who have established a good payment
history through Quick Cash Loans or clients who are earning more than Php 20,000 per
month and require a higher loan amount.
 Quick Cash Loan- Our approval process is simple. In most cases you will be approved for
a Quick Cash Loan if you are a permanent employee with the same company for at least
one year. At present we only offer this loan product in selected branches.
https://123finance.ph/FAQ
2. 1109 Nikkia Financing Inc.
 Bridge Loans
 Operating Loans
 Capital Expenditure and Business Expansion
https://nikkiafinancing.com/
3. 168 LEGRAND FINANCING CORPORATION
4. 216 BAYAN FINANCING COMPANY INC.
5. 24 - 25 FINANCE CORP.
6.
References:

https://carpolaw.com/ra10881-foreign-ownership-finance-companies-philippines/

https://businesstips.ph/how-to-register-a-financing-company-in-the-philippines/

https://smallbusiness.chron.com/primary-functions-finance-companies-
40480.html

https://www.ifsautoloans.com/blog/whats-difference-banks-finance-companies/

https://yourbusiness.azcentral.com/main-sources-uses-funds-finance-companies-
29310.html

http://www.bsp.gov.ph/downloads/laws/RA8556.pdf

http://www.sec.gov.ph/lending-companies-and-financing-companies/list-of-
financing-companies/