Financing for businesses in the midst of inflation

THE economy grew by 8.3 percent in the first quarter, in a promising start to the year, as more industries reopened. As infection levels declined and lockdowns eased, the Philippines is looking to bounce back from the previous two down years of the pandemic.

Inflation, however, has also risen — hitting 6.4 percent in July — and the Bangko Sentral ng Pilipinas (BSP) is looking to mitigate its impact on the country. From higher oil prices to rising interest rates, the effects of inflation are being greatly felt.

The BSP, which has been raising policy rates in a bid to temper inflation, is expected to continue doing so. BSP rates are used by banks and financing companies as a benchmark for their own financing, credit card and deposit rates, so consumers can expect to pay more down the road.

Small and medium enterprises (SMEs), which comprise 99 percent of all businesses in the Philippines, are facing an uphill battle for growth. Due to the hike in interest rates, it has become more challenging for these businesses to get the funding or support they need.

First Circle, however, won’t be going the way of higher interest rates. As announced by Chief Executive Officer Patrick Lynch last July 21, the fintech company will maintain its standard interest rates — as low as 1.39 per month — for at least up to the end of 2022. This is a good sign for businesses as they will still have a favorable financing option.

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With its revolving credit line facility, First Circle can help alleviate cash flow gaps and other operational expense problems. What makes the product very beneficial is that businesses do not have to spend a single peso upon availment and instead only spend once they make use of the line. This can be seen as “insurance” considering all the uncertainties the country is facing.

Initiatives like this from financing companies are huge for businesses, especially startups that have yet to establish credit scores. While BSP rate hikes may be inevitable, it is important for the financial sector to still support SMEs. As interest rates and commodity prices continue to rise, SMEs will need credit lines and nontraditional members of the financial sector who have the capacity to keep their rates at bay may be crucial.

Not only are credit lines beneficial to businesses but they are becoming more and more of a necessity. The underlying factor here is the cost for this financial support. With companies like First Circle going out of their way to continue putting stakeholder interests first, there is hope that SMEs can overcome inflation.

Martin Lacson is the sales training and development manager of First Circle’s Sales Acquisition Department. For inquiries email [email protected]


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