Business Finance

Quarter 3 – Module 5:
Bank and Nonbank
Loan Requirements
Business Finance – Grade 12
Alternative Delivery Mode
Quarter 3 – Module 5: Bank and Nonbank Loan Requirements
First Edition, 2020

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Business Finance
Quarter 3 – Module 5:
Bank and Nonbank
Loan Requirements
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
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 What I Need to Know

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:

1. identify the bank and nonbank institutions in the vicinity that are possible
sources of funds, and enumerate their requirements and process for loan
application; and

2. compare and contrast the loan requirements of the different banks and
nonbank institutions and cite these institutions in the locality (ABM_BF12-
IIIe-f-14).

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 What I Know

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.

Directions: Name 3 banks you are familiar with. Write your answers on a separate
sheet of paper.

1. _________________________
2. _________________________
3. _________________________

Directions: Name 3 nonbanks you are familiar with. Write your answers on a
separate sheet of paper.

1. _________________________
2. _________________________
3. _________________________

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 Lesson
Banking and Nonbanking
1 Institutions

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), to name a few.

Source: https://www.bsp.gov.ph/SitePages/FinancialStability/DirBanksFIList.aspx

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 (The World Bank Group 2020).

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
(Insurance Commission 2018).

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 (BSP-List of Money Sevice Business 2020).

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
(Bangko Sentral ng Pilipinas 2020)

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.

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 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).
The following examples were cited for education purposes only.

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

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deep interest payment. Financial analysis, financial ratios and budget preparations
are some tools that can help business utilize its funds wisely.

Below are the loan requirements of banks and nonbanking institutions.

Loan Requirements of Banks

a. Application form – is the details gathered in this form refers to your personal
data, income sources and credibility.
b. 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.
c. 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.
d. Bank statements – are client record of bank transactions which is used to see
the liquidity of cash flow of the business.
e. 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.
f. 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.
g. Collateral documents - include land title, tax declaration, vicinity map, and
special power of attorney (if applicable).

Loan Requirements of Nonbanking Institutions

a. Application form – refers to your personal data, income sources

and credibility.
b. 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.
c. Credit information/collateral file – are documents offered by the client
submitted to and held by a Custodian.
d. Credit investigation – may be required to determine the credit standing of the
applicant and the fair market value of the collateral being offered.

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Loan Application Flow Chart (Yumang, et al. 2016)

Figure 1: Flow Chart of Loan Application

(Source: Exploring Small Business and Personal Finance)

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.

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 What’s In

Directions: Compare and contrast loan application in bank and nonbanking

institutions by using the Venn Diagram below. List at least 3 functions that they may
be similar or different. Write your answers on a separate sheet of paper.

Similar Functions
Bank Nonbanking
1.
Institutions
1.
2.
1.
2.
3.
2.
3.
3.

Notes to the Teacher / Facilitator

A business should always be cautious in choosing a
lending company that it transacts with. Most of the time, people
do not engage at loan applications in banks due to the weight of
requirements. However, for a businessman who values his
business like a family, avoiding requirements does not make
him/her wiser in finances. These are the people who usually fall
for loan sharks then end up burdened and left with nothing.

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 What’s New

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 payable for 36 months and the purpose is to remodel your
store.

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 FILIPINO BANK BUSINESS LOAN APPLICATION FORM

Existing Secure It Bank Client? If YES, what type of account?

Account Type Account Numbers
✓ Yes ✓ Payroll 523-54897

No Deposit/Investment
Loans

LOAN DETAILS
LOAN AMOUNT LOAN PURPOSE
PHP 500,000.00 Working Capital Requirements
Purchase Equipment
LOAN TENOR ✓ Purchase/Remodel Workplace

12 mos 24 mos Business Expansion/Start New Business

18 mos ✓ 36 mos Marketing Advertising

BORROWER INFORMATION
TYPE OF BORROWER ✓ Sole Proprietorship Partnership Corporation

BUSINESS INFORMATION
Business/Company Name Family Business Tax ID Number (TIN)
✓ Yes 404-143-877-001
IMPERIAL GROCERY STORE
No

Years in Business Number of Employees Nature of Business

3 Years 5 Retail Business

Business/Plant/Office Address
#39 Sitio Gulod Santa Ines San Miguel Bulacan 3011

Bldg No. Street Subd./Brgy. Municipality City/Province ZIP Code

Telephone Nos Mobile Number Email Add

044-3819217 0966-677-5573 imperialgrocerystore@gmail.com

BUSINESS OWNERS/MANAGEMENT
Name (Last, First, Middle) Years in Role Position
Bunaladi, Cean Lee Barquira 3 Years Owner/Manager

BUSINESS FINANCIAL INFORMATION

LATEST YEAR NET INCOME PHP 300,000.00
BANK/DEPOSIT ACCOUNTS
Date Opened Outstanding Balance
Bank (mm/dd/yyyy) (Php) Bank Statement?
Filipino Bank January 01, 2018 PHP 150,000.00 Yes

LOAN/CREDIT ACCOUNTS
Bank Loan Amount Monthly Payment Maturity Date

Figure 2: Sample Business Loan Application Form

(Adapted from one of the banks listed in BSP Universal & Commercial Banks)

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 What is It

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)

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 What’s More

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 at par. 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
your answer.

Scoring Rubrics:

The idea is well explained and analyzed with factual basis or

9-10 pts
supporting computation.
The idea is explained and analyzed but without factual basis or
6-8 pts
supporting computation.
The idea is explained and analyzed ambiguously but is
3-5 pts
acceptable.
The idea is not accurately analyzed, and the explanation is far
1-2 pts
from the concept or main idea.

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 What I Have Learned

Directions: Enumerate 5 advantages and disadvantages in applying loan in bank and

nonbank. Write your answers on a separate sheet of paper.

Bank Loan Application

Advantages Disadvantages

Nonbank Loan Application

Advantages Disadvantages

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 What I Can Do

Directions: Identify banks and nonbanks around your area. Write as many as you
can on a separate sheet of paper.

Banks Nonbanks

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 Assessment

Directions: Discuss the following concepts. Write your answers on a separate sheet
of paper.

1. Enumerate 5 loan requirements of a bank.

___________________________________________________________________________
___________________________________________________________________________

2. Enumerate 5 loan requirements of a nonbank.

___________________________________________________________________________
___________________________________________________________________________

3. Which financial institution provides the best benefit to a loan applicant, bank
or nonbank? Explain your answer. (2 to 3 sentences)
___________________________________________________________________________
___________________________________________________________________________

Scoring Rubrics for No. 3:

The idea is well explained and analyzed with factual basis or

9-10 pts
supporting computation.
The idea is explained and analyzed but without factual basis or
6-8 pts
supporting computation.
The idea is explained and analyzed ambiguously but is
3-5 pts
acceptable.
The idea is not accurately analyzed, and the explanation is far
1-2 pts
from the concept or main idea.

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 Additional Activities

Directions: Make use of a bank’s website and print a Loan Application Form.

Special Instructions:

1. Do not forget to cite the source of the document. Write it at the bottom of the
application form.
2. Write your name in the personal information section of the form.
3. Assume any type of business of your choice, create its name, address, mobile
number, and email address.

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 16
What I Know What’s In
(student’s answer will depend on the
establishments they know.)
What’s New What Is It
On the search of loan requirements, student’s answer
Students will fill out the application form. may vary…
What’s More What I Have Learned
On case analysis, student’s answer may
vary. Decision making can vary from one
student to another.
What Can I Do Assessment
Students answers may vary depending on Students’ answers may vary depending on how the
the available banks or nonbank around student discussed the topic according to the lesson. The
their area. student’s idea can be measured by using the rubrics
provided.
Additional Activities
Students’ answers may vary on the search of application form.
Answer Key
References
2018. Insurance Commission. September 12. Accessed January 21, 2021.
https://www.insurance.gov.ph/wp-content/uploads/2017/08/List-of-
Insurance-Companies-whose-CA-were-renewed-for-LY-2016-2018.pdf.

2020. Bangko Sentral ng Pilipinas. September 14. Accessed January 21, 2021.
https://www.bsp.gov.ph/SitePages/FinancialStability/DirBanksFIList.aspx.
2020. BSP-List of Money Sevice Business. December 31. Accessed January 21, 2021.
https://www.bsp.gov.ph/SitePages/financialstability/Directories.aspx.

2020. List of BSP-Supervised Pawnshops. December 31. Accessed January 21, 2021.
https://www.bsp.gov.ph/SitePages/financialstability/Directories.aspx.

BSP Overview of Functions and Operations. 2015. Bangko Sentral ng Pilipinas.

Accessed July 24, 2020. http://www.bsp.gov.ph/about/functions.asp.
The World Bank Group. 2020. Nonbanking Financial Institution. Accessed July 24,
2020. https://www.worldbank.org/en/publication/gfdr/gfdr-
2016/background/nonbank-financial-institution.
Yumang, Kenneth L., Tyrone Panzer L Chan Pao, Erlinda C. Pefianco, and Patricia
Pefianco-Benito. 2016. "Flow Chart of Loan Application." In Exploring Small
Business and Personal Finance, by Kenneth L. Yumang, Tyrone Panzer L.
Chan Pao, Particia Pefianco-Benito and Erlinda C. Pefianco. The Phoenix
Publishing House Inc.

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