After a year of surviving amid financial adversities brought about by the COVID-19 pandemic, several micro and small enterprises (MSEs) now need to manage their debts better for a swifter recovery.
Rodolfo Mabiasen, Jr., Head of Financial Inclusion and Microfinance Solutions of BPI Direct BanKo, said low profitability, poor cash flow, and a decline in savings last year necessitated better debt management.
During the most recent webinar of the Show Me Teach Me (SMTM) program of BPI Foundation, the social development arm of the Bank of the Philippine Islands (BPI), Mr. Mabiasen gave some tips to MSEs on how to manage debt, which can be a crucial tool for growing businesses and one way of successfully financing the business.
“A good way to start managing your debt is to know how much you owe. Make a list of your debts, monthly payment, interest rate, and due date,” he said. Another efficient way to manage your debt is to cut unnecessary spending or costs that dig your business further into debt.”
He added that it is advisable to pay off loans with the highest interest rates first because the higher the interest rate is, “the more you end up paying, and the longer it takes to pay the loan.”
One must also consider refinancing or consolidating debt. “Negotiate with creditors and restructure the loan to match cash flow with the loan payment. If you have multiple debts, you can consolidate your debts and choose a bank with the most convenient terms, possibly at reduced interest rates,” he said.
Misconceptions about loans abound, he lamented. A common misconception is that borrowing money from a financial institution means all income would go to paying debt and interest. He advised business owners to make sure that the incremental income derived from the additional capital is higher than the interest to be paid on the loan.
He also said it is not true that banks don’t lend to small businesses. “If additional capital is needed as the business grows, the owner can either find an investor, borrow from family and friends, or borrow from a bank,” he said.
Banks, he said, use 5Cs of credit when evaluating whether or not to grant a loan —Character or the willingness and intention to pay, Capacity or the ability to pay, Capital or the investment in the business, Condition or the external factors that affect the business, and Collateral or a guaranty to the loan. The last one, however, may not always be required.
On SMTM program’s 11th year, BPI Foundation, in partnership with the Department of Trade and Industry-Philippine Trade Training Center (DTI-PTTC), continues to provide a digital learning platform for MSEs to ensure they are equipped with practical knowledge on business resiliency and sustainability while continuing to grow their enterprises amid the ongoing pandemic.
“MSE’s are considered the main drivers of economic development in many countries, including developing countries like the Philippines. This ongoing pandemic has badly impacted this sector, forcing many players to quit the game,” said BPI Foundation Executive Director Owen Cammayo. “As the social development arm of BPI, we are committed to help this very important sector survive and recover, especially during these extra challenging times.”
Over 240 participants attended SMTM’s fourth webinar on Debt Management via Zoom and Facebook Live.
