A Short Guide to Business Loans for Medical Suppliers

Articles
August 3, 2020

Demand for medical supplies and equipment has spiked this year of the global pandemic and will continue to be high throughout 2020 and beyond, at the rate that COVID-19 cases continue to increase in the Philippines and across the world.

 

As suppliers in an industry with an influx in demand, time is of the essence. You have a huge responsibility to provide the orders of your clients like hospitals on time so that they could serve and care for medical patients. To add to that great responsibility, you also have an impact on the much bigger market of consumers. This is true especially for those who manufacture or resell medical supplies to businesses that directly serve the millions of Filipinos in need of protection through Personal Protective Equipment (PPE), disinfectant/ santising solutions, and other necessities. As much as you would like to fully commit to this important responsibility you know that one of the biggest barriers to uninterrupted supply and continuous operations is a healthy working capital.

 

This is when business loans always come in handy for small businesses because sometimes, even when you execute the best strategies to ensure a positive cash flow, various external forces can push you to apply for a business loan. And when faced with these situations you’re usually just left with two choices: delay commissioning a new purchase order or respond to orders on time and benefit from continuous sales and profits from large companies or government transactions. The second choice, when allocated properly, can actually fix your cash flow problems in the long run so you can run your business without worrying about the day-to-day expenses.

 

However, in reality, during this time of need and economic uncertainty, you’re only really left with one choice and that is to get a business loan to increase your revenues.

 

 

Other good reasons to get a business loan for medical suppliers

  • Ensure good quality of your products without compromising essential parts of the supply chain due to poor cash flow.
  • Expand to other areas of the country or export outside of the country.
  • Hire more staff to meet the growing demand.
  • Pay your suppliers on time to complete an order on time.
  • Purchase new equipment to increase your operational capacity or boost the quality of your output.
  • Make necessary product developments.
  • Invest in strategic marketing to increase your market share and differentiate your brand from competitors.
  • Be financially independent and have more control over your business.

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What is a business loan?

For starters, a business loan is precisely for businesses who need to acquire funding from banks, private companies or the government to support their business to start it, sustain or expand it throughout its lifetime. 

 

 

What are the types of business loans out there?

Businesses loans differ mainly based on these points:

  • Source
  • Business requirements
  • Structure
  • Repayment options

 

As broken down categorically above, there are four main types of business loans that you should be familiar with by definition and function so that you can make the right business loan strategy that is suited for your specific business needs.

 

1) Term Loans

Term loans are time based and are suited for business owners who require additional funding on top of their financing operations and usual sources of cash. As they are bounded by time, term loans can either be short-term or long-term depending on the need of a business and are usually disbursed by the loaning institution in one lump sum.

Traditionally the more popular loan to take, term loans have a simple repayment structure that are easily met by borrowers as both principal and interest payments are spread out and can be paid through regular monthly installments.

 

Average loan amount: Php100,000 - Php20 million

Repayment schedule:

·  Short-term – 3-6 months for most online loans and one year for banks

·  Long-term – 5 to 15 years

Generally suited for:

·   Equipment loans

·   Office or warehouse/production house expansion or renovation

Pro-tip: Since we’re on the topic of covering cash flow gaps to commit to projects and sustain the growth of your business, it’s best to go for short-term business loans that you can manage and won’t cause complications to your long-term financing and working capital structure.

 

Term loans can be either secured or unsecured, which will be discussed below.

 

2)     Credit Line

A credit line is a short-term loan that can either be given by banks and private lending firms. Unlike term loans, an approved credit line will not be given to the borrower in a lump sum but with access to a predetermined limit, which can be taken out at any time.

The concept is simple and those who take out a credit line prefer to because it’s easier to manage interest fees as interest only begin to accumulate when you take out money from your credit line. You’re only required to pay for the amount you used. Also you can pay for the principal at any time you choose within the credit line term.

Credit line loans are usually disbursed via the borrower’s checking account or through online fund transfers and ATM withdrawals, which are methods done by online lending companies.

 

Average loan amount: Php500,000 to Php20 million.

Generally suited for: Seasonal cash flow spikes (i.e. when certain seasons like the New Year or the COVID-19 pandemic trigger inventory building).

3)     Secured Business Loans

Secured loans are called such because they are “secured” or guaranteed by a collateral in the form of real estate properties and bank deposits. These types of collateral are non-negotiable as the lender can use these collaterals in case the borrower defaults on the loan.

Designed to be generally low risk for lending firms (usually all banks in the Philippines), they provide the following benefits for businesses who qualify for it:

·   Lower interest rates

·   Higher loan amounts

·   Longer loan terms

 

Disadvantages:

·   Approval can take months

·   Usually require at least one in person meeting at the designated branch you’ve applied with.

·   Usually requires enterprises to be in business for at least 2-3 years

Generally suited for:

·   Startups and small businesses in their early stages and those who need to grow revenues and profits.

Other charges:

·   Appraisal and collateral registration fees

 

Typically, term loans and credit lines fall under secured business loans.

 

4)     Unsecured Loans

These are simply the opposite of secured business loans in terms of unsecured loans not requiring any collateral. This is great for business owners who don’t have collateral to show for but because this leaves lending firms who provide unsecured loans with a higher risk, you can expect higher interest rates, generally lower loan amounts, and shorter loan terms.

As only a few banks may offer this type of loans currently, its private companies who specialize in unsecured loans and usually require a purchase order or invoice in place of collateral.

While unsecured loans may seem easy to get, you would still have to present business documents such as your BIR Permit and SEC Registration  as well as personal documents that will need to be vetted by the lending firm you decide to take a business loan from.

 

Generally suited for:

·   SMEs that are just starting out and don’t have collateral

·   Entrepreneurs who are taking out a business loan for the first time and need fast business loans

Disadvantages:

·   Higher interest fees by up to 2%

·   Lower total loan amount

Pro-tip: the more credible documents you can provide the better it is for you as you can get your loan approved faster and could possibly get a lower interest fee.

 

First Circle is one of the top online private financing firms in the Philippines that specialises in online business loans for SMEs. Our two products, Invoice Financing and Purchase Order Financing can be obtained in as fast as 3-5 days if requirements are provided readily and pass the vetting stage.

As the official partner of the Department of Trade and Industry, First Circle shares the same mission of uplifting SMEs in the Philippines through enabling businesses to achieve their full potential through fast, fair, and flexible financial partnerships. Catering specifically to SMEs we take our mission seriously in providing the speed you need to get your business loan right away.

With the help of our dedicated sales team, we also ensure flexibility depending on your business needs. Should you need to reschedule your repayment, all you would need to do is let the relationship manager assigned to you know.

 

These are how our products can specifically help finance your business needs:

Purchase Order loans can help finance your purchase of raw materials to ensure continuous supply and allow you to take on more orders, thereby capturing the demand growth of the industry.

Invoice Financing can help you replenish your inventory so you’re ready to deliver to any client on time.

 

Learn more about online loans in the Philippines here.

You can read more about the common types of business loans for your business in depth here.

 

Plan your next steps for your business’ profitability

Remember to stick to your objectives before taking out a business loan. The chance of you doing this regularly is high especially since the demand in the medical supplies and equipment industry is projected to continue rising.

 

A smart plan would be to include business financing or taking out business loans in your financial strategies, which maps out your growth strategies and what you will do to execute them. A specific example would be to list down your path to profitability through your current products and services that you offer. Are you pricing your products well? Is your current product offering enough or are your competitors way ahead of you in terms of product innovation, therefore eating into your market share? While expansion plans may trigger your need for business financing, unforeseen demand from customers would sure prompt your need for a business loan.

 

Your next step then would be to understand which of the business loan options mentioned would your business be eligible for. Which business loan design or structure presents the best match for your current financial position? This means the business loan option you choose shouldn’t tear a bigger hole into your cash flow instead of helping fix your finances. Which has the best repayment structure that you can work with? Last, consider very well how you intend to use various financing options to fill working capital to grow your business exponentially.


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