MAP Insights


The best time to borrow money for your business is now

written by Mr. Benedict S. Carandang - August 16, 2022

Applying for a business loan is not the best experience for most Filipino small-to-medium enterprises (SMEs). Many SMEs complain about the lengthy application process, numerous documentary requirements, and narrowing likelihood of actually getting funding approval. Rather than go through these hurdles, business owners would rather dip into their savings, or borrow directly from family and friends.


However, if your business demands additional funding to grow, the best time to get a business loan is now. Money on hand means that you can prepare for — or even capitalize from — a mix of inflationary pressures and business opportunities coming up in the following months.


See the following reasons why a business loan now rather than later is the best move:


Another round of interest rate hikes will make borrowing more expensive


Inflation is up worldwide — not just in the Philippines — largely due to multiple international factors that spilled over into the domestic economy. This drove up the lending interest rate to 3.25% in July.


In addition, the Bangko Sentral ng Pilipinas (BSP) is not ruling out further interest rate hikes at its next policy meeting on August 18. Since most financial institutions turn to BSP rates as a benchmark for loan and credit card rates, another interest rate hike will make loans even more expensive come August.


Not all lenders are raising prices, however. First Circle — a fintech lending company serving SMEs since 2016 — has committed to maintaining their revolving credit line interest rate for new and existing clients, at least for the rest of 2022. In an email to clients, First Circle even mentioned the possibility of lowering their rates further through new projects that they will be announcing soon. First Circle’s revolving credit line currently goes for as low as 1.39% interest rate per month.


You’ll get more out of business investments now rather than later


While nothing is certain, the government fully expects the national inflation rate to rise — even increasing their 2022 forecast to 4.5%-5.5% last July. Based on that data, you’re better off making large business purchases sooner than later.


This is explained by the “time value of money” concept in economics, which simply means that the value of money decreases over time. ₱1 million in funding will buy more today than if you wait six more months. In addition, the sooner you invest that money in your business, the sooner you’ll earn returns. Since inflation will also lead to a future decrease in economic and consumer spending, these returns can offset a possible slump in sales.


Once you have a loan, which business investments should you prioritize? Real estate may be the most obvious, as it is a good inflation hedge — but if it won’t benefit your bottom line in the next few months, don’t force it. Instead, focus on expenses and investment that will increase your business revenue and relevance to clients. These can be increasing equipment, technology, or inventory to prepare for your busiest seasons; closing on business leads; or streamlining your business operations and processes to increase overall productivity and efficiency.


You can secure your business against further inflation shocks


Financing assistance and tax breaks may have been available to SMEs during the worst of the pandemic lockdowns. But if inflation continues for the rest of the year, SMEs won’t be able to receive the same benefits — even if they will suffer the most due to higher prices of raw materials and labor, lower revenues, and the need to increase wages to retain employees.


Thus, it is in every business owner’s best interest to secure their businesses now, especially if you have a predictable cash flow gap coming up in the next few months. If you wait a few more months to borrow, that need may only become urgent — and you’ll be jockeying in line with other borrowers who are also suffering the same inflationary pressures in their business. This means you’ll also wait longer for your loan to get approved.


The good thing about getting a business loan now is that it doesn’t have to cost you anything. Instead of a term loan, consider a revolving credit line: upon approval, you are given a pool of funds to dip into whenever a business need arises. You’ll only have to pay for the amount you used plus interest, making it a zero-commitment way of securing your business.


First Circle’s Revolving Credit Line, for instance, is popularly used by their SME clients as an emergency fund for their businesses. Even when these SMEs didn’t have financial strains — or had other financing options — they opened a credit line simply because the application was free, available online, and resulted in a conditional credit line offer in just three business days. Some SMEs who received a lower interest rate from First Circle also used their credit lines to pay off existing debt, cutting down on their expenses.


A business loan is a big move, and it’s not always necessary to take your business further. It requires a lot of thought, research, and business planning to ensure that your funding will bring you more benefits than headaches.


However, if you’re already in the market for business financing — and you’re getting it to protect or grow your business — then take the next few days to consider your finances and narrow down your business loan options. Waiting longer will cost you more.


(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is Member of the MAP. He is the Vice President for External Relations of First Circle, a fintech provider that helps SMEs grow through long-term partnership, flexible financing, and free tools to help them find government opportunities. This article is co-written with Jess Jacutan, First Circle’s Content Marketing Lead. Feedback at <> and <>).