Department of Education

Bureau of Learning Delivery Teaching and

Learning Division

BUSINESS FINANCE

Quarter 1 Week 5 Module 5

Learning Competency:
The learners shall be able to compare and contrast the loan requirements
of the different banks and non-banks institutions and cite these institutions
in the locality.
ABM_BF12-IIIe-f-14
 HOW TO USE THIS MODULE?

PARTS OF THE MODULE

•
•
•
•
• Check your Understanding - It will verify how you learned from the lesson.

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 LESSON Loan Requirements of the Different Bank and Non-
Bank Institution.
1

At the end of the module, you will be able to compare and

contrast the loan requirements of the different bank and non- bank
institutions
Let us start your journey in
learning more on the loan requirement of
PRETEST the different Bank and Non-Bank
Institutions. I am sure you are ready and
excited to answer the Pretest. Smile and
Enjoy!
I. MULTIPLE CHOICE

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 Directions:. There are 5C’s of Credit - the institution’s primary consideration
in approving the loan applications.
Choose the letter corresponding to the correct answer for each of
the questions provided below
1. What 5C’s of Credit that shows the willingness of the borrower to repay the loan
a. Character c. Capital e. Capacity
b. Condition d. Collateral
2. What 5C’s of Credit that a customer’s ability to generate cash flows .
A. Character c. Capital e. Capacity
B. Condition d. Collateral

3. What 5C’s of Credit that security pledged for payment of the loan

a. Character c. Capital e. Capacity

b. Condition d. Collateral
c.
4. What 5C’s of Credit that shows a customer’s financial resources.
a. Character c. Capital e. Capacity
b. Condition d. Collateral
c.
5. What 5C’s of Credit – shows current economic or business conditions .
a. Character c. Capital e. Capacity
b. Condition d. Collateral

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 BRIEF INTRODUCTION

While banks and non-banking financial companies (NBFC) both are key financial
intermediaries, that offer almost similar services to the customers. The major
difference between NBFC and bank is that unlike banks, an NBFC cannot issue
self-drawn cheques and demand drafts.

Another important point of distinction amidst these two is that while banks take
part in the country’s payment mechanism, non-banking financial companies are
not involved in such transactions.

As finance is the basic requirement of individual’s and business’s, banks alone

cannot cater all the sections of the society. That is why NBFC came into being,
both in public and private sector, to complement banks in providing finance to
people.

Comparison Chart
BASIS FOR
NBFC BANK
COMPARISON

Meaning An NBFC is a company that Bank is a government authorized

provides banking services to financial intermediary that aims at
people without holding a bank providing banking services to the
license. general public.

Incorporated under Companies Act 1956 Banking Regulation Act, 1949

Demand Deposit Not Accepted Accepted

Foreign Investment Allowed up to 100% Allowed up to 74% for private sector

banks

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 BASIS FOR
NBFC BANK
COMPARISON

Payment and Not a part of system. Integral part of the system.

Settlement system

Maintenance of Not required Compulsory

Reserve Ratios

Deposit insurance Not available Available

facility

Credit creation NBFC do not create credit. Banks create credit.

Transaction Not provided by NBFC. Provided by banks.

services

Banks are required to verify the identity of their customers to ensure that the funds will not be used
for illegal activities such as, but not limited to, money laundering and terrorist financing.

5C’s of Credit - the institution’s primary consideration in approving loan applications.

• Character –the willingness of the borrower to repay the loan
• Capacity – a customer’s ability to generate cash flows
• Collateral – security pledged for payment of the loan
• Capital – a customer’s financial resources
• Condition – current economic or business condition

Example/case:
Mr. Joe Salazar applied for a PHP1.5 million loan in behalf of his business, “Joe’s Restaurant”, for
additional capital in 2015. He is the Chairman of the Board of Joe’s Restaurant. In their meeting,
the Board decided to open an additional branch for the restaurant. Joe’s Restaurant currently has 3
branches in Metro Manila and would like to open up a small branch in Quezon City. Joe’s
Restaurant has been in the business for 12 fruitful years and has been a previous borrower of the
bank. The company had previous late payments before but the reasons are usually justifiable, and
the balance of the loan, along with any penalties, if any, is paid. The three branches earn a net
income of PHP900,000/ year. The lot where the main restaurant is located is pledged as collateral
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to the bank. This property is valued at PHP2 million. Shown below is an excerpt from Joe’s
Restaurant’s 2014 consolidated audited financial statements.

As of 31 December 2014 As of 31 December 2013

Current Assets 1,200,000 900,000
Long-term Assets 4,400,000 4,200,000
Short-term Liability 500,000 460,000
Long-term Liability 2,300,000 3,500,000
Equity 2,800,000 1,140,000
Net Income 900,000 950,000
Cash Flow from Operations 500,000 450,00

TAKE THE CHALLENGE

Activity 1

Give The information to be used in analyzing the 5c’s of credit. Some information are already given.
1. Character: Check Joe’s Restaurant’s payment history and experience in the business. The
fruitfulness of the business proves Mr. Salazar and the BOD’s ability to manage the business
well.
2. Capacity: _______________________________________________________
______________________________________________________________.
3. Collateral: The property pledged serves as collateral. Its value is usually greater than the loan
to provide the bank security for sudden changes in value of the collateral, as well as to
compensate the bank for the collateral’s illiquid nature.
4. Capital___________________________________________________________
________________________________________________________________
5. Condition: The income statement shows that the business is earning and is even growing.
The business has already grown to 3 branches. This shows a preview of the growth in the
food industry. Learners may also research on other business growth trends to know about
macroeconomic conditions.

Duties of the Borrower to Creditors In both bank and non- bank institutions

1. Pay the creditors based on the payment schedule agreed upon. If you cannot pay on time,
notify the creditors ahead of time. But as much as possible, pay on time.
2. Provide the collaterals as agreed upon in the loan negotiation with proper
documentation, if necessary and if applicable (e.g. annotation of the TCT or CCT). Ensure
that these collaterals are in the physical condition perceived by the creditors in
determining the loanable value of the loans.
3. Comply with the provisions of loan covenant such as maintaining certain liquidity and
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 leverage ratios. These conditions are supposed to benefit the borrower so that his
company will not be over-exposed to borrowing or he will monitor the liquidity position
on a more regular basis.
4. Notify the creditor if the company is acquiring another company or the company is now
the subject of acquisition. The interest of creditors may be jeopardized if new owners take
over the company or if the company is going to acquire another company.
5. Do not default on the loans as much as possible. Aside from the creditors, there may be
other parties such as the guarantors of the loan who will be put at a disadvantage if the
borrower defaults.

List of Bank Requirements for Loan Application for a Corporation

(Arthur S. Cayanan)

• Pre-approval Requirements:
• Duly accomplished application form
• Securities and Exchange Commission (SEC) registration
• Articles of incorporation and by-laws
• List of elected officers
• Board resolution or corporate secretary’s certificate regarding loan application
• Company profile or business background
• List of major suppliers and customers with contact information
• Audited financial statements (2 to 5 years depending on the bank)
• Bank statements (most banks require bank statements for the past 6 months)
• Collateral documents such as the following:
• Copy of transfer certificate of title (TCT) or condominium certificate of title (CCT)
• Copy of tax declaration
• Appraisal Fee with official receipt
• For construction loan
• Building plan or floor plan
• Bill of materials and labor cost
• Building specifications certified by architect/civil engineer
• Development permit
• Copy of lease contracts (if applicable

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Self-Test Questions:
1. Compare and contrast the different loan requirement of banks and non-bank
institutions.
2. Enumerate the 5C’s of credit (EASY)
3. What do you think is the most important consideration of banks in approving a
loan? (AVERAGE TO DIFFICULT)
4. Why is it important for banks to collect all the loan requirements? Which
requirements are meant to be used to evaluate each of the 5C’s of credit? (AVERAGE
TO DIFFICULT)

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 To further explore the concept learned today and if it possible to connect the internet, you may
visit the following links:

https://www.slideshare.net/ipermeeta/working-capital-management-4632140
https://www.slideshare.net/neerajchitkara/cash-management-13919917

Teaching Guide for Senior High School, Business Finance, Published by the Commission on
Higher Education, 2016

Acknowledgement
Prepared by: Letessie A. Diano
ABM Teacher
MANDAUE CITY COMPREHENSIVE NHS
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