Has this ever happened to your business? You just started and the sales are moving at a decent pace. Suddenly, bulk orders surprise you one morning. It’s a good problem but you don’t have enough money to buy more inventory.
Or consider this scenario, the recent floods hit your warehouse wiping most of your goods. You still have an active market but your cash reserves are in the low to replenish spoilt goods. Or maybe, business is doing great and you need to invest in machinery to manufacture more products. What do you do in these situations?
You would like a bank loan because it’s relatively cheaper interest-wise. But it’s so hard to get one. I mean. I don’t have land or real estate to use as collateral. Just like any MSMEs, borrowing from banks might never be an option.
But this might change with the recent signing of the Personal Property Security Act.
Personal Property Security Act
Last August 17, Republic Act No. 11057 dubbed as the Personal Property Security Act is now a law. With President Duterte signing, more funding is accessible to more Kababayan business owners from banks and lending institutions.
The acceptable assets for a loan are extended to personal property as the definition of collateral is updated.
“A description of collateral shall be considered sufficient whether it is specific or general if it reasonably identifies the collateral.”
“A description such as ‘all personal property,’ ‘all equipment,’ ‘all inventory’ or ‘all personal property within a generic category’ of the grantor is sufficient.”
Right now, you can use personal properties or movable assets such as vehicles, machinery, inventory, and even intellectual property rights as collateral. Only aircraft and ships are explicitly not allowed to be used.
But with any law, we need safeguards to avoid abuse. The main problem with using personal property is the risk of “repeat use”. Some crafty Filipinos can repeatedly utilize the property for multiple loans.
The law mandates the “creation, perfection and determination of priority, establishment and centralized notice registry and enforcement of security interests in personal property.”
The Land Registration Authority is tasked to maintain this electronic registry to assure the lenders that the collateral is not used on other loans.
With that, I hope this can help our liquidity needs in the future. Good luck!