Features of Lending Company in the Philippines

Lending company in the Philippines under Republic Act No. 9474 ( RA No. 9474 or Lending Company Regulation Act of 2007) is synonymous to lending investors and refer to a corporation engaged in granting loans from its own capital or from funds sourced from not more than nineteen (19) persons. It shall not be deemed to include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law. For easy reference, hereunder are its basic features:

Form of legal entity

Under the new law (RA No. 9474), a lending company must be a stock corporation. Sole proprietorship and partnerships engaged in lending business are now illegal, after being given a one-year grace period to incorporate with the Securities and Exchange Commission. To learn more about stock corporations, please read more on…Overview of Domestic Corporations in the Philippines.

Corporate Name

To distinguish a lending company from other businesses extending loans, the words “Lending Company” or “Lending Investor” or any other word descriptive of its primary activity of granting loans to the public. However, use of words commonly used to identify financing companies shall not be allowed.

Capitalization

The minimum paid-up capitalization of lending company in the Philippines in One Million Pesos PhP1,000,000.00.  Branches of lending companies shall have the minimum capitalization depending on its location:

  • Metro Manila and other first class cities – P300,000;
  • Second class cities – P150,000; or
  • Municipalities – P75,000
Such capitalization shall be the source of funds for lending to the public or it could borrow from not more than 19 persons. It shall use at least 51% of its capitalization for direct lending purposes, and the total investment in real estate and in shares of stock in real estate development shall not be more than 25% of its net worth.
Stockholders/Directors

Majority of the voting stocks of the lending company shall be owned by Filipino citizens and the rest could be owned by foreign national. No foreign national may be allowed to own stock unless the country of which he is a national accords reciprocal rights to Filipinos.

Certificate of Authority

Approval of the SEC of the application for lending company registration will not suffice. A lending company, main office and every branch it shall put-up, is required to secure a Certificate of Authority as a secondary license before it could operate. From the issuance of the Certificate of Authority, the lending company shall operate within a period of 120 days, otherwise, SEC may suspend such Certificate of Authority. Hereunder are some requirements for Securing Certificate of Authority:

  • Information sheet
  • NBI clearance of each director/officer
  • For foreign directors, Bureau of Immigration clearance, photocopy of passport showing valid Visa or stay in the Philippines, ACR i-Card, and a work permit issued by the Department of Labor and Employment (DOLE);
  • President’s Sworn Statement and undertaking
  • Business Plan including method of marketing its products and sources of funds and maturities of credit, and,
  • Statement of Compliance with Rule 17.1(A)(i) and (ii) of the Amended Implementing Rules
  • SEC fees of 1/10 of 1% of paid-up capital of head office, or based on assigned capital for a branch
The process may take some time depending upon the completeness of the above documentation.
Charges on Loans

Lending company could grand loans in such amounts and interest rates, and charges as may be agreed upon with the borrower. Being in the business of providing loans to the public, a lending company shall comply with The Truth in Lending Act requiring lenders to furnish the borrowers a statement with the following contents:

  • Principal amount of the loan
  • Rate of interest of the loan
  • Service or processing fee
  • Amortization schedule
  • Any penalty charge for late amortization payment
  • Collection fee, if any
  • Notarial fee
  • All fees in connection with the loan transaction
  • Description of the collection and lien enforcement procedures, and
  • Method of calculating the total amount of obligation in case of default.
Failure to profide the above may entitle the lending company some risks and penalties.
Maintenance of Books of Accounts

Every lending company shall maintain books of accounts and records as may be required by the Securities and Exchange Commission (SEC), and prescribed by the Bureau of Internal Revenue (BIR). A manual of accounts prescribed by the Bangko Sentral ng Pilipinas for lending investors shall be adopted. In case the lending company engages in other business, it shall maintain separate books of accounts for these businesses.

Reportorial Requirements

Lending company shall file with the SEC the following reports/manuals:

  • General information Sheet (GIS) – within thirty (30) days from annual meeting as stated in the By-laws;
  • Audited Financial Statements – within 120 days from end of fiscal year provided in the By-laws;
  • Special Form for Financial Statements in Electronic Format – within 30 days from last day for filing of audited financial statements;
  • Interim Semi-annual Financial Statements (using special format) – Every July 15 and January 15;

The above reports are to be filed with the Securities and Exchange Commission because it is now the SEC who regulates lending companies, except those lending companies which are subsidiaries or affiliates of banks and quasi-banks which are subject to the supervision and examination of the Bangko Sentral ng Pilipinas.

Penalties for violations

A fine of not less than P10,000.00 and not more than P50,000.00, or imprisonment of not less than six months but not more than ten (10) years, upon discretion of the courts may be imposed upon the violations of the provisions of RA No. 9474.


Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at info@taxacctgcenter.org.)


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