the payment period, and the collateral.

Consumer Credit • The interest charges of S&Ls are generally lower than those of
some other types of lenders because S&Ls lend depositors' money,
which is a relatively inexpensive source of funds.
Commercial Banks
• Commercial banks make loans to borrowers who have the capacity
to repay them. Credit Unions (CUs)
• Loans are the sale of the use of money by those who have it (banks) • Credit Unions are nonprofit cooperatives organized to serve people
to those who want it (borrowers) and are willing to pay a price who have some type of common bond.
(interest) for it.
• Banks make several types of loans, including consumer loans,
• The nonprofit status and lower costs of credit unions usually allow
housing loans and credit card loans.
them to provide better terms on loans and savings than commercial
• Consumer loans are for installment purchases, repaid with interest
institutions.
on a monthly basis. The bulk of consumer loans are for cars, boats,
• The costs of the credit union may be lower because sponsoring
furniture and other expensive durable goods.
firms provide staff and office space, and because some firms agree
• Housing loans may be for either residential mortgages, home
to deduct loan payments and savings installments from members'
construction or home improvements.
paychecks and apply them to credit union accounts.
• Credit card loans may be available in the form of cash advances
• Credit unions often offer good value in personal loans and savings
within prearranged credit limits.
accounts. CUs usually require less stringent qualifications and
provide faster service on loans than do banks or S&Ls.
Savings and Loan Associations (S&Ls)
• savings and loan associations used to specialize in long-term
Consumer Finance Companies (CFCs)
mortgage loans.
• Consumer finance companies specialize in personal installment
• Today, S&Ls offer personal installment loans, home improvement
loans and second mortgages.
loans, second mortgages, education loans and loans secured by
• Consumers without an established credit history can often borrow
savings accounts.
from CFCs without collateral.
•S&Ls lend to creditworthy people, and usually, collateral may be
• CFCs are often willing to lend money to consumers who are having
required.
difficulty in obtaining credit somewhere else, but because the risk is
• The loan rates on S&Ls vary depending on the amount borrowed,
higher, so is the interest.
• The interest rate varies according to the size of the loan balance
and the repayment schedule.
Pawnbrokers
• CFCs process loan moapplications quickly, usually on the same day
• Recently made famous by reality shows, pawnbrokers are
that the application is made, and design repayment schedules to fit
unconventional, but common, sources of secured loans.
the borrower's income.
• They hold your property and lend you a portion of its value. If you
repay the loan and the interest on time, you get your property back.
Sales Finance Companies (SFCs) • If you don't, the pawnbroker sells it, although an extension can be
• If you have bought a car, you have probably encountered the arranged.
opportunity to finance the purchase via the manufacturer's financing • Pawnbrokers charge higher interest rates than other lenders, but
company. These SFCs let you pay for big-ticket items, such as an you don't have to apply or wait for approval. Pawnbrokers' chief
automobile, major appliances, furniture, computers and stereo appeal? They rarely ask questions.
equipment, over a longer period of time.
• You don't deal directly with the SFC, but you are generally informed
Loan Sharks
by the dealer that your installment note has been sold to a sales
• These usurious lenders have no state license to engage in the
finance company. You then make your monthly payments to the SFC
lending business. They charge excessive rates for refinancing,
rather than to the dealer where you bought the merchandise.
repossession or late payments, and they allow only a very short time
for repayment. They're infamous for using collection methods
Life Insurance Companies that involve violence or other criminal conduct. Steer clear of them.
• Insurance companies will usually allow you to borrow up to 80 They are illegal, after all.
percent of the accumulated cash value of a whole life (or straight life)
insurance policy. Loans against some policies do not have to be
Family and Friends
repaid, but the loan balance remaining upon your death is subtracted
•Your relatives can sometimes be your best source of credit.
from the amount your beneficiaries receive.
However, all such transactions should be treated in a businesslike
• Repayment of at least the interest portion is important, as
manner; otherwise, misunderstandings may develop that can ruin
compounding interest works against you. Life insurance companies
charge lower interest rates than some other lenders because they
take no risks and pay no collections costs. The loans are family ties and friendships.
•And, if the IRS catches wind of an intrafamily "loan," it can "impute
interest" on the loan —which would be income to the lender, but not
deductible to the borrower. Being caught up in an IRS audit can also for business financing.
blight family relationships. - It may also provide tax advantages and could protect you from
some of the personal liability you might face as a sole proprietor.

Business Credit
1. Register your business
Depending upon where your business is located, you’ll likely have to
• Access to cash and credit is a business’s lifeline.
register with your Secretary of State. In many states, this is part of
• Business credit allows a company to borrow money that can be
the incorporation process you will complete when you set up your
used to purchase products or services.
LLC or corporation. Nonetheless, it’s a good idea to double- check
• It is based on the trust that payment will be made in the future.
with your Secretary of State to confirm you’ve completed all of the
necessary business registration requirements.
Why establish business credit?
• For business owners, having a separate legal entity, such as a
2. Request an Employer Identification Number (EIN) from the IRS
corporation or limited liability company, provides the unique ability to
An EIN is like a Social Security Number for your company. You’ll use
create a credit identity with business credit reporting agencies, also
it to identify your business when you pay taxes to the IRS. An EIN is
known as a business credit profile.
also important when you fill out applications for business financing,
• A business credit profile is important because it is used by credit
like business credit cards and loans, and when you open a bank
grantors to determine whether or not to extend credit to a business.
account in your company’s name.

How to Get Business Credit

3. Open a business bank account
The formula to earn solid business credit scores isn’t difficult to
•Having a separate business bank account can make your company
understand. Your business needs to open commercial credit
seem more credible in the eyes of lenders.
accounts and manage them well.
•The health of a business is frequently measured by reviewing the
cash flow in and out of its business bank account.
•Establish your business as a separate legal entity. •A business bank account can also help you keep your corporate and
- When you form a separate legal entity for your company, it can personal finances separate – avoiding accounting issues and
make it easier to create a business credit file and, eventually, qualify challenges at tax time.
 before having to pay for them.

4. Get a dedicated business phone number

• You don’t have to sign up for an expensive phone service if your 3. Retail Credit – Many small and major brand retailers offer store
business doesn’t need it. However, getting a dedicated phone credit cards for businesses.
number for your company is a must if you want to appear credible to • Unless they’re co-branded, the card can only be used in a specific
lenders and service providers (not to mention your customers). store.
Remember to get your business phone number listed in your local • This type of business credit may make sense if you have a specific
directory as well. store you regularly use for business purchases.
• Once your business has been properly formed and in operation, the
next step is to apply for credit in your company’s name.
4. Service Credit – The easiest form of business credit you can
There are several basic types of business credit you can acquire as a
establish for the first time is service credit.
newly formed startup or existing business with little to no credit
• Your internet, cell phone, cable, satellite TV, web hosting and other
identity established.
utility services are all agreements your company makes with
providers.
Types of Credit
1. Vendor Credit – Vendor credit is when an individual or business
Business Credit Cards – One of the most important tools to keep
offers products or services that your company can purchase on
your personal and business purchases separate is a secured or
short term financing (typically net 30 terms).
unsecured business credit card.
• There are many vendors willing to extend credit to startups with
• It’s essential that you apply for a business credit card that reports
minimal requirements.
only to the business credit agencies so you can protect your
• In some cases, a vendor may require an initial purchase or deposit
personal credit as well.
prior to extending credit terms.

• These are five ways you can establish credit for your business for
2. Supplier Credit – This type of business credit is when a supplier is
the first time. It’s important to closely monitor your business credit
willing to provide supplies to your business and defer the payment
reports and scores on a regular basis to ensure the information
for a later date.
reporting is accurate and up to date.
• This type of financing is great for conserving cash flow because it
gives you time to sell the products you receive from the supplier
• Remember, by establishing business credit; • Rediscounting is a standing credit facility provided by the BSP to
Banks, lenders, suppliers, retailers, insurers & investors will now be help banks meet temporary liquidity needs by refinancing the loans
able to better access the viability and creditworthiness of your they extend to their clients and enable them to deliver credit to all
business.
Ultimately, your business credit report will impact the amount of
productive sectors of the economy.
credit, payment terms, interest rates and insurance premiums your
• It is one of the monetary tools of the BSP to regulate the level of
business will pay.
liquidity in the financial system.
• Overdraft Credit Line (OCL) is available to banks participating
directly in the clearing operations of the Philippine Clearing House
Corporation to cover shortfalls in the banks’ demand deposit
Government Credit
accounts with the BSP arising from clearing operations.
• Emergency loans are financial assistance to banking institutions to
• Governments may owe public debt in the form of bonds, notes, bills, serve as temporary remedial measures to help solvent banks
and the like, which require specified payments to the holders at overcome their liquidity problems arising from causes beyond their
designated times. control, pursuant to Section 84 of R.A. No. 7653, as amended by
• For the most part, public debt differs from private debt only in that it R.A. No. 11211.
is an obligation of government rather than of private individuals or
corporations.

Loans and Credits

• The BSP extends discounts, loans and advances to banking
institutions in order to influence the volume of credit consistent with
objective of price stability and maintenance of financial stability.
• It also grants loans or advances to banking institutions in
precarious financial condition or under serious financial pressures,
subject to certain conditions. Credit facilities include:

Credit facilities include: