"The lending industry thrives better in times of financial crunch," according to Edgardo Tipa, a financial trainer with BusinessCoach Inc. who has been conducting seminars for four years now.
To cope with the crisis, people try to stretch their budget and augment their income. Many households put up sari-sari stores; family members look for sidelines, try working abroad, or simply try to borrow money. To raise the money to finance these activities, many of them go to lending firms instead of the commercial banks. This is because lending firms are more lenient in their requirements, offer lower interest rates, and process loan applications faster. "Entrepreneurs can set up a lending business to take advantage of this demand for easier credit," Tipa continues.
With over 20 years of extensive experience in banking and corporate finance, Tipa knows the ins and outs of financing, and gives us his advice on setting up a microlending business.
A lending business can be set up as a single proprietorship, partnership, or corporation. However, you can't use the word "lending" or "finance" in your business name if you choose to set up your lending business as a single proprietorship or partnership. You can only use those words if your company is a corporation. In fact, a corporation has advantages that a single proprietorship or a partnership doesn't have.
In setting up a microlending business, you need to raise the required minimum capital of P1 million and then register your business with the Securities and Exchange Commission or SEC (www.sec.gov.ph). The usual permits and documents required in setting up a business will be required, like the Mayor's permit, certification from the Bureau of Internal Revenue (BIR), and Social Security System, Philhealth, and Pag-IBIG coverage for the people you will be employing in the business.
In microlending without quasi-banking activities, you may cater to employees, pensioners, sari-sari storeowners, market stall-holders, and OFWs. OFWs usually require bigger loan amounts that start at P50,000, but it is advisable for startups to lend smaller amounts with short payment terms. This will make repayments faster and enable you to loan out money to more borrowers.