The Philippines is currently being served by a growing number of innovative and progressive Financing and Lending Companies. While the sector is still in its early stages in the Philippines, startups and SMEs now have access to a wider range of financing options including short-term corporate loans, invoice financing and salary loans.
In this article, we provide an overview of some of the key considerations and requirements under the compliance and regulatory framework for Lending Companies and Financing Companies in the Philippines.
First off! What exactly is meant by a “Lending Company” or a “Financing Company” in the Philippines?
Lending Company Vs. Financing Company – What’s the difference?
In the Philippines, both Lending Companies and Financing Companies are supervised and regulated by the Securities and Exchange Commission, or the SEC.
It should, however, be noted that companies which are subsidiaries of a bank or a non-bank financial institution with a quasi-banking licence are subject to supervision and examination by the BSP (or the Bangko Sentral Ng Pilipinas).
While both types of companies perform similar business activities – providing loans or credit and charging interest to customers – there are some important differences between the two companies from the perspective of compliance and regulation in the Philippines.
Lending Companies in the Philippines
Republic Act No. 9474, otherwise known as the Lending Company Regulation Act of 2007, together with its Implementing Rules and Regulations, is the primary legislation governing Lending Companies in the Philippines. This legislation has been amended in recent years (in particular, by RA No. 10881) – so always ensure that you are reviewing the most up-to-date version!).
Under the 2007 Act, a Lending Company is a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than 19 persons.
The term “Lending Company” does not include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions that are already otherwise regulated by law.
The 2007 Act (as amended) provides for various criteria required for establishing or running a Lending Company in the Philippines. Just some of these key requirements are outlined below:
- A lending company must be established as a stock corporation.
- A lending company may be owned 100% by foreign nationals (however, restrictions apply where loans are secured by land).
- Words that are descriptive of the company’s primary activity of granting loans to the public must always be included in the corporate and trade name. For example, “lending company” or “lending investor”. Words that are commonly used to identify Financing Companies (see below) are excluded.
- Lending Companies must use at least 51% of their funds for direct lending purposes.
- Lending Companies must have a minimum paid-up capital of One Million Pesos (PhP1,000,000.00), unless otherwise prescribed by the SEC.
- Once granted a Certificate of Authority to operate as a Lending Company (see below), the company must commence operations within 120 days.
Financing Companies in the Philippines
Republic Act No. 8556, otherwise known as the Financing Company Act of 1998, as amended, is the key legislation governing Financing Companies in the Philippines. This legislation has been amended in recent years (in particular, by RA No. 10881) – so always ensure that you are reviewing the most up-to-date version!
Under the 1998 Act, a Financing Company is a corporation which is primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable and immovable property.
Banks, investments houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws are not included in the definition of a Financing Company.
The 1998 Act (as amended) provides for various criteria required for establishing or running a Financing Company in the Philippines. Just some of these key requirements are outlined below:
- A Financing Company must be established as a stock corporation.
- Financing Company can be owned 100% by foreign nationals. The constitutional requirements on foreign ownership of land must, however, still be observed.
- Paid-up capital must not be less than P10,000,000 if the company is located in Metro Manila or another first class city. Different capital requirements apply if the company is located outside a first class city.
- The name must contain the term “financing company”, “finance company”, “finance and investment company” or any other terms descriptive of its operations and activities as a Financing Company.
Certificate of Authority to Operate
Before either a Financing Company or a Lending Company can commence with financing or lending activities in the Philippines, permission to operate must first be secured from the SEC.
Permission is granted by the SEC in the form of a Certificate of Authority (see below).
The SEC maintains up-to-date and separate lists of a) the Lending Companies and b) the Financing Companies, that have been duly registered in the Philippines and granted a Certificate of Authority.
Here is the SEC list of Registered Lending Companies in the Philippines.
Here is the SEC List of Registered Financing Companies in the Philippines.
Securing a Certificate of Authority
Prior to commencing operations, a new Lending Company or Financing Company must first register with the SEC and obtain a Certificate of Authority to Operate.
You will find the specific registration requirements for both Lending Companies and Financing Companies on the Forms and Fees Page of the SEC website, under the category “Secondary License”.
In general, both types of company must submit 4 copies of the application pack (including all documents, information, exhibits and papers) to the SEC. Such documents/information may, at a minimum, include:
- Notarized Application Form. This must be signed under oath by the company’s President.
- Company Information Sheet. Details include company name, end of fiscal year, company history, capital structure, stockholders, business activity and business plan, credit policies, etc. This is to be sworn by the company President.
- Documents required for registration as a corporation. e.g. Articles of Incorporation, By-Laws, etc.
- NBI clearance of each director/officer. Foreign directors/officers must show additional documentation (i.e. Bureau of Immigration Clearance, Philippine visa, ACR Card, DOLE work permit, etc);
- President’s Sworn Statement and Undertaking.
- Evidence of paid-up capital (e.g. Notarized Bank Certificate of Deposit).
- Treasurer’s Affidavit.
- Clearance from the BSP (if Financing Company is a subsidiary of a bank or non-bank financial institution with a quasi-banking licence).
Note: The above outlines some of the general documents/information required. Specific requirements may vary depending on the type or status of the company being registered. Be sure to check the Application Form requirements and liaise with the SEC for clarity prior to submission.
SEC Reporting Requirements
Outlined below are some of the primary reporting requirements to which both Lending Companies and Finance Company are subject. Depending on the type and status of company, additional reporting requirements may be applicable. You can check the full list of SEC Reporting Requirements here for Lending Companies and here for Financing Companies.
The General Information Sheet (GIS) must be filed within 30 days from the annual stockholders meeting.
Audited Financial Statements must be submitted before 15 April (for companies with fiscal years ending on 31 December) and within 120 days from the fiscal year end if the fiscal year falls on another date.
Special Form for Financial Statements must be submitted within 30 days of the last due date of submission of the AFS. Financing Companies and Lending Companies have separate forms for submission of the Special Form Financial Statement.
Semi-Annual Financial Statements (using the Special Format) must be submitted by every July 15 and January 15.
The Truth in Lending Act
While the Lending Company Regulation Act of 2007 (as amended) and the Financing Company Act of 1998 (as amended) are the primary legislation governing Lending and Financing Companies in the Philippines, there are other pieces of legislation of which such companies need to be aware. The Truth in Landing Act is just one!
The Truth in Lending Act is an important piece of legislation in the Philippines which Financing and Lending Companies are obliged to consider and apply. The Lending Company Regulations Act 2007 even references the Truth in Landing Act as a requirement for compliance!
RA No. 3765, better known as The Truth in Lending Act (as amended) requires lenders to provide their customers (i.e. borrowers) with all relevant information as a formal statement or disclosure which ensures that they understand exactly what they are signing up for and the terms of the agreement into which they are entering. This would include the principal value of the loan, interest rates. schedule of amortization, fees, service charges, late charges, penalties, etc.
The objective and purpose of The Truth in Lending Act is to protect the final consumer when dealing with finance and lending companies and to prevent the uninformed used of credit in the Philippines!
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