What Every Business Owner Must Know About SBC’s P3 Program

Here are five key takeaways about the SBC’s P3 program that should encourage micro, small and medium enterprises to be flexible when planning to raise capital through debt financing.

by Randolf Santos

Micro, small and medium enterprises (MSME) in the Philippines often struggle to raise capital through debt financing instruments. How many times did banks reject your loan application?

While some entrepreneurs want to borrow money from banks because of the low interest, several roadblocks await them once they submit a loan application. The difficulty of gaining approval for a bank-financed loan forces many business owners to choose the infamous “5-6 lending” scheme. The Small Business Corporation (SBC) has recognized this trend, which led them to launch the Pondo sa Pagbabago at Pag-asenso (P3) program in 2017. However, MSMEs should know that the initiative may not be for every business owner.

The Program Has Certain Restrictions

The national government formed SBC to support the growth of MSMEs through debt allocation. However, you won’t be eligible for financing assistance if your company’s asset size exceeds Php3 million. New MSME owners should also engage in business for at least one year before planning to borrow money.

Logistics serves as another impediment for some MSME owners. SBC’s Gabriel Ebanen advised that the businesses of loan applicants should be located within an hour of public transportation from an SBC office. This becomes particularly troublesome for MSME owners in regional areas.

You May Need Additional Sources of Debt Financing

MSMEs can borrow between Php5,000 and Php200,000 without collateral based on their size and financial capacity for repayments. Companies with at least one employee can borrow up to Php200,000. In other words, the P3 program won’t be the answer to your big-ticket acquisition or expansion plans.

If you prefer an alternative to bank financing, then VESL can help you with finding the right creditors from its network of lenders. Businesses can borrow up as high as Php30,000,000, depending on your loan history and your matched lender’s underwriting. Our platform has provided clients with access to finance and insurance products that used to be exclusive to large companies.

You Can Get the Same Interest Rate From Other Sources

SBC imposes an interest rate not higher than 2.5% every month for P3 loans. The monthly cap, which includes service fees, is the effective interest rate based on the principal amount’s diminishing balance. By contrast, 5-6 lenders charge at least 20% per month! The actual interest can be even higher because of the frequency of payment collection either on a daily or weekly schedule.

If you apply for a collateralized MSME loan with banks, the interest rates can range from 6.5% to 8% depending on your chosen tenor. Alternatively, when you sign up with VESL, the rates from matching lenders can be as low as SBC’s monthly cap. Registration is also free!

New Debt Means More Risk

Debt financing can ensure that your business passes through the gestation stage (usually three to five years), but it also means a higher risk for your financial profile. Business owners should start reviewing their clients and end-buyers’ probability of default to protect their bad debt reserves, which shouldn’t be used too early in a startup company’s development phase.

VESL can not only give you access to the right lender, but also to the right trade credit insurer to guard your receivables against delinquency. Trade credit insurance helps MSME owners to take care of their creditworthiness. Don’t let delinquent or delayed invoices ruin your relationship with lenders, unless you don’t mind borrowing money from unscrupulous 5-6 lenders.

The Program Needs More Certainty

Department of Trade and Industry Secretary Ramon Lopez suggested the enactment of a law to stabilize the P3 program. Lawmakers earmark a specific amount for the P3 program from the national budget every year, but Lopez believes that regulating the SBC project will ensure that it can last indefinitely.

As of July 2019, more than 89,000 MSMEs in the country have reaped the benefits of the P3 program. In 2018, the SBC released a total of Php3 billion in debt financing assistance for the sector.

Conclusion

SBC’s P3 program has supported thousands of MSMEs in just two years. Unfortunately, though, the initiative doesn’t suit every business owner. Financing technology companies in the Philippines have stepped in to bridge the financing gap, in which VESL has taken the lead since 2017. Contact us now to learn more about our services. Why not try today? Registration is free, and we offer a pay-per-invoice arrangement for new and old clients.

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Is Your Buyer Asking for Better Payment Terms?

Here are 5 Things you MUST know about your buyers before you do that.

Firstly, what are payment terms?

These are the terms that you, as seller, set to communicate to your clients when you would be expecting their payment. These terms are usually found on the contract and on the invoices relating to that contract.

Common invoice payment terms:

CODCash on Delivery
PIA/CIAPayment in Advance/Cash in Advance
Net 7Payment after seven days of invoice date
Net 10Payment after ten days of invoice date
Net 30 Payment after thirty days of invoice date
Net 60 Payment after sixty days of invoice date
Net 90 Payment after ninety days of invoice date
EOMEnd of Month
Letter of Credit A documentary credit confirmed by a bank, often used for export

Providing better payment terms is a sign of having good faith to your buyer. It’s actually sometimes called giving credit terms because essentially, you’re providing credit to your buyers – to pay later. You’ll find that sellers who do this tend to be aggressive in closing deals. Giving better payment terms is good if you are poising your business to grow.

So, if a new buyer asks for better terms, before jumping in to say yes (or no) right away, you need to first conduct proper buyer due diligence. You can do this by purchasing a credit report from a credit reporting agency or you can do it yourself.

Here’s how you do it yourself – the least you can do

5 things you should ask for from your buyer before giving payment terms.

1. Basic info: Name, address
2. Legal status: Date of establishment, identification number
3. Business activity description: distributor, wholesaler, etc.
4. Trade references: commercial morality (are they involved in any past litigations?), payment history, and agency credit scores if available
5. Financial condition: past and current financial records

There’s nothing wrong erring on the safe side.

Chances are, when you’re applying for trade credit insurance or trade financing for your transactions, the information above would be the same data insurers and lenders would ask about your buyer. Availability of these data can smoothen your applications too.

Disclaimer: The views and opinions expressed by the author does not necessarily reflect the official policy or position of Vesl Pte Ltd. Should you wish to contact the author of the blog, you may do so by contacting her here.

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The Untold Story of International SMEs: An Entrepreneur’s Perspective

Ambitious and cautious, Green Mint Pte Ltd is an international trading business what has grown in folds over just a few years thanks to its founder’s ability to seize opportunities and try out new things.

by Maureen Ledesma

This blog focuses on Green Mint’s founder and CEO, Vaibhav Gupta, who shares his inspirations, struggles, and vision for his company.

Know Your Heart’s Desire

According to Vaibhav, when he was still in college, he had a vision that he will start a business as he doesn’t find himself suitable for a regular job. He’d get bored and would want to make more money than being an employee. However, he understood early on that he needs to learn how everything in business works, and he knows it won’t be easy.

“After college I gained experience from various business houses and learned the importance of purchasing and financing.”

In 2012, three years after college, Vaibhav opened up Green Mint which is a company trading various metals.

“I started making money and I realized the potential of what I’m doing. If I add volume to my trades, I’ll definitely make more money.”

According to Vaibhav, he would not be here without his business partner whom he also considers his mentor. Vaibhav took over Green Mint upon the retirement of his partner in 2016. In addition, Vaibhav recognizes the support of his wife and his family in developing this business.

The Struggle is Real

We asked Vaibhav on his biggest challenges in starting and growing Green Mint. According to Mr Gupta, their biggest challenge when starting was maintaining cash flows and finding the right banking partners who can then later provide lower cost of funds.

“Biggest challenge for us is to obtain fund at a lower cost. Big players in the market have low cost funds and had done vertical integration, whereas players like us have high cost of funds. Finding capital for vertical integration is a big task.”

Be Brave to Try New Things

Vaibhav’s go getter nature to take advantage of opportunities and his courage to try new things in trade finance rewarded him and helped him grow his business. One of Vaibhav’s buyers wanted open account payment terms, 60 90 120 days. He was hesitant to offer payment terms but, since it’s good business, he looked around for solutions to minimize his risks.

“One of my buyers told me that we can have trade credit insurance on them so I’m comfortable to provide a credit period. When I was searching for credit insurance, I found Vesl. Main distinguishing factor between others and Vesl was that Vesl was providing per invoice-based insurance through their platform which was very cost effective in comparison to other players who take lump sum amount for providing trade credit insurance.”

Vaibhav successfully covered his invoices by accessing the Vesl platform and was matched to a lender who would finance his receivables. Not only did Vaibhav have peace of mind dealing with a buyer asking for payment terms, he also found new lending partners who can grow his credit limits. Now Vaibhav banks with one of the biggest Indian Commercial Banks at a lower cost of funds, thanks to trade credit insurance.

Don’t be Complacent, You’re Limitless!

Green Mint as a Company started with copper scrap, and later moved to nickel and steel. Nowadays they are processing and selling ingots. They have expanded and are currently headquartered in Singapore with networks in UAE, Hongkong, China and Africa.

Vaibhav is not stopping with one venture. “In coming years, Green Mint shall be in manufacturing and retail of goods. We are aggressively working in agro retail space.”

Stop Reading Success Stories

According to Vaibhav, to have an edge in starting a business, it is a requirement to have a niche, be focused and have deep knowledge of an industry to know where you can add value.

“There are already big players who have been there longer than you, have integrated far wider than you, and they won’t allow you to eat their share“, Vaibhav said.

“Before jumping into entrepreneurship, keep in mind that the struggle is real. Don’t read success stories. Go to people who failed and learn from them.” He added.

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Trade Finance Options in the Philippines

Here’s a compiled reference for those wishing to access business loans or trade financing in the Philippines.

What are the limitations?

As you can see, options are quite numbered, especially for new companies with little to no resources. More so, exporting is not supported for companies 0-3 years old as credit facilities for international trade would often require collateral and a banking relationship.

But fear not, for all hope is not lost.

With trade credit insurance, forward thinking lenders have approached our platform and are opening their doors to transactional lending (receivables finance or supplies finance) for domestic and international trade, even for new companies.

We are excited to share more about transactional lending with some of the lenders in the Philippines in our coming blog entries. At this point, perhaps your education about the different financing options is the most important thing we can share. We want to help you grow and expand. And know that if you are qualified, there are better options than paying 10% per month on your loans.

Stay tuned.

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3 Ways to Manage Cash Flow Like a Pro

Cash flow is the money that comes in and out of your business. Cash comes in when your clients pay for the goods and services that you provide. Cash goes out when you pay for your supplies, salaries, rent, etc. It is of course ideal to keep your cash flow positive where more cash comes in than goes out.

When does cash flow management become a problem? Cash flow management can become a little bit tricky when you start growing as a company and you start giving your customers better payment terms. This is when your business records sales before it receives a customer’s payment.

So let’s get to it. 3 Ways to Maximize Cashflow like a Pro, as promised.

1. Collect, collect, collect!

  • Start with a properly written contract. State clearly when you expect payment from your buyer. Make sure that your buyers understand when they’re supposed to pay invoices issued to them. Try to offer discounts for early payment and penalties for late payment.

  • Set credit limits with your buyers. A credit limit is the maximum outstanding amount of sales your business allows for a buyer. (Example, you’re not selling more of your products to a buyer because they haven’t paid their last invoice of Php500,000 yet. This means your credit limit for this buyer is set at Php500,000.)

    Don’t be afraid to deny or lower the credit limit to customers who pay late. If historically a buyer pays on time, you can also be more generous with them. What if it’s a new buyer? One way to check if they deserve higher limits is by analysing their financial statements. You can also purchase a credit report from an agency, or check with a trade credit insurer.

  • Have a strong collection team. Call your buyer when payment is due. Don’t be afraid to ask for payment. This only shows buyers that you have a system and they will form a habit around it. Remember, their payment is the most important part of a sale.

2. Stretch your own expenses!

  • The biggest expense other than salaries is paying for supply. Hence, make sure you choose your suppliers wisely. Do they provide early payment discounts? Are they providing you payment terms? Negotiate longer payment terms with suppliers who you’ve had the longest relationship with. If your suppliers’ payment terms are not competitive, look for new suppliers.

3. Secure your sources of working capital.

  • One of the easiest ways to improve cash flow is to have your receivables financed by a lender. Stop waiting to get paid after 60, 90 120 days. Free your cash from being trapped in receivables by approaching lenders who can take over the waiting period for payment. Lenders will charge for interest payment, but the cost can often be offset by taking advantage of supplier discounts for your early payments. Another way is by passing on the cost of financing to your customers.

  • It is crucial to secure a receivable financing line as early as possible. Don’t wait until you are in a cash flow crunch to secure additional sources of liquid cash. Don’t be complacent, it sometimes takes time for lenders to provide you with a receivable financing line. Some lines wouldn’t be enough, providing you only credit up to 50% of your invoices. They might request for you to purchase trade credit insurance, so they feel more comfortable with your receivables. But often, when you have trade credit insurance, they are willing to extend your credit line higher or lower your interest rates because by virtue of the insurance, buyer’s default risk is mitigated.

Take control of your cash flow now. As prescribed above, there are ways to make certain that your cash outflows do not overshadow your cash inflows. Now go, don’t be afraid to grow. But don’t let your growth kill you.

Disclaimer: The views and opinions expressed by the author does not necessarily reflect the official policy or position of Vesl Pte Ltd. Should you wish to contact the author of the blog, you may do so by contacting her here.

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Business Protection 101: Cash Flow Security

by Lou Samson

Businesses face many types of risk and uncertainties all the time. Business-to-business transactions are especially prone to risks of buyers not paying on time or not paying at all. At one point, suppliers have doubted the ability of their buyers to pay them, specially those asking to pay thirty or sixty days after the invoice due date. In cases like this, managers can rest easier with Trade Credit Insurance. Simply put, Trade Credit Insurance, or TCI for short, is a form of protection that businesses can use to secure invoices made through open accounts or with buyers that pay on credit.

Expand your business with confidence

Buyers usually ask for payment terms when transacting with suppliers, as they prefer more time before they pay for the goods. Due to uncertainty and lack of trust, sellers may turn down these buyers, losing opportunity to increase sales. If these sellers knew about trade credit insurance, they wouldn’t have to reject these opportunities to expand their business. TCI protects transactions made through open accounts, consequently making longer transaction periods plausible. For business who want to expand, it minimizes their risks in exploring the market further and transacting with potential buyers they have not dealt with before.

TCI and financing go hand-in-hand

Trade credit insurance is more than just a protection from non-payment of your buyers. It is also a tool for businesses to open the gates to better financing. Oftentimes, suppliers that transact on open account find themselves strapped with cash as they wait for their buyers to pay. They turn to different financial institutions for a loan, but most of them are turned down for plenty of reasons.

To acquire financing, lenders often require trade credit insurance to mitigate the risk of non-payment and the lack of collaterals from the borrower. Not only does TCI lower the reluctance of lenders to finance the borrower, but it can also lower interest rates and give better financing terms altogether. Borrowers are provided access to more lenders and may even have the chance to choose what would best suit their needs.

Why you’ve probably never heard of trade credit insurance

It is usually the big companies of suppliers and manufacturers involved in cross-border trade who secure credit insurance for their exports. Traditionally, TCI is based on a company’s annual turnover, and insurance providers rarely cater to businesses with less than USD 1 million annual revenue. Because of that, TCI has become largely exclusive to companies with giant annual revenues. With those in mind, although incredibly beneficial, trade credit insurance does not come cheap and is not readily available to the SME market.

Fortunately, VESL is providing innovative solutions to make trade credit insurance more accessible. A first of its kind in Asia, VESL facilitates trade credit insurance, on a “pay per transaction” scheme, making it simple and more practical. With VESL, businesses can access world-class protection at a fraction of the cost. Moreover, VESL brings together insurers, lenders, and suppliers into one convenient and efficient platform. VESL is pushing the limits of trade credit insurance and opening more financing opportunities, so more businesses can can benefit from this instrument.

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