MAP Insights


The SME Financial Toolkit: Business loans, credit lines, and salary loans

written by Mr. BENEDICT S. CARANDANG - March 19, 2024

One of the essential skills that small and medium enterprises (SMEs) need to master in order to survive growing pains is the strategic use of the financial tools available to them. Beyond the day-to-day management of expenses and business revenue, SMEs are faced with the pressure to generate enough cash flow to break even, cover the maintenance of capital assets as they wear out, and finance growth so the business can eventually earn a return on investment. When used correctly, financial tools, such as business loans, credit lines, and employee salary loans, can ease this pressure and help SMEs optimize their operational efficiency, enhance financial stability, and secure a competitive edge in the rapidly evolving market landscape.

The structured nature of business loans, with their defined repayment terms, allow for precise financial planning for SMEs that need a lump sum of capital. Business loans are fundamental and instrumental for businesses that already know the amount they need to finance a major project. Thus, business loans are ideally used for expansion, new equipment, property purchases, and other large purchases. It enables businesses to undertake investments that would otherwise be impossible to finance, accelerating their development trajectory.

A credit line works like a credit card for your business: you get a credit limit that you can borrow from and pay off repeatedly as needed. You only pay interest on the amount you borrow, and you can keep borrowing against your credit limit as long as it is not exhausted or expired. Credit lines are often active for one year, subject to renewal.

Credit lines offer unparalleled flexibility for SMEs that need to manage cash flow gaps or seize unexpected business opportunities. The most strategic use for credit lines, however, is to simply have it on standby as an emergency fund. Some credit lines are non-collateral and free to open, which means businesses pay nothing unless it is used. Credit lines are also excellent for maintaining operational continuity, sustaining financial solvency, and financing minor spends, like research and development. They are a cost-effective solution for businesses seeking to balance financial preparedness with cost efficiency.

For SMEs, maintaining a healthy cash flow is critical to sustaining operations and pursuing growth opportunities. However, the practice of employees requesting advances on their salaries can present a significant challenge in this regard. Such advances may seem like a benign accommodation at first, but they can easily lead the business into a precarious financial situation. Each advance potentially disrupts the carefully planned allocation of funds, diverting resources away from crucial business needs, such as inventory purchases, marketing efforts, or essential infrastructure improvements. Over time, frequent advances could strain the business’ liquidity.

Employee salary loans are a novel financial tool to help SMEs support both the financial well-being of the business and their employees. Offering salary loans is a tangible manifestation of a business’ commitment to employee welfare, bolstering job satisfaction and morale by alleviating employees’ financial stress. By integrating employees’ financial well-being into the company’s operational strategy, SMEs can also attract and retain top talent — a critical factor in sustaining competitive advantage.

The integration of business loans, credit lines, and employee salary loans into an SME’s financial strategy offers a comprehensive approach to managing both business operations and employee welfare. Here’s how SMEs can harness these tools effectively:

1. Leverage Business Loans for Strategic Investments: Use business loans to pay for major growth-oriented investments, ensuring that these ventures have the potential to generate returns that exceed the cost of borrowing.

2. Utilize Credit Lines for Operational Flexibility: Maintain a credit line to manage cash flow effectively, ensuring that your business can navigate the ups and downs of market demand and operational costs with agility.

3. Offer Employee Salary Loans as a Benefit: Introduce employee salary loans as part of your benefits package. This aids employees in financial emergencies and builds a supportive company culture, enhancing employee loyalty and well-being.

For SMEs aiming to thrive beyond their survival stages, the strategic use of financial instruments extends beyond mere capital acquisition. It encompasses a balanced approach to investment, operational flexibility, and employee welfare. By adopting this multi-faceted financial strategy, SMEs can not only navigate the complexities of the market, but also foster a resilient and committed workforce — laying the groundwork for sustained growth and success.


Benedict S. Carandang is a member of the Management Association of the Philippines’ ICT Committee. He is vice-president for External Relations of First Circle, a fintech provider that helps SMEs grow through partnership, financing, and free tools to find opportunities. This article was co-written with Jess Jacutan, First Circle’s content marketing lead.