Financing Companies

• Sec. 1. This Act shall be known as the 


  "Financing Company Act of 1998."
• Declaration of Policy


  1. Regulate and promote the activities of financing and leasing companies

  2. Place their operations on a sound, competitive, stable and efficient basis as other financial institutions

  3. Recognize and strengthen their critical role in providing medium and long-term credit for investments in capital goods and equipment especially by small and medium enterprises particularly in the countryside

  4. Curtail and prevent acts or practices prejudicial to the public interest

  5. Enable them to extend efficient service in a fair manner to the general public and to industry, commerce and agriculture

  6. Contribute to the sound development of the national economy
• Financing companies


  Corporations, except banks, investments houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws, which are 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 as well as immovable property
• Credit


  Any loan, mortgage, financial lease, deed of trust, advance or discount, any conditional sales contract, contract to sell, or sale or contract of sale of property or service, either for present or future delivery, under which, part of all or the price is payable subsequent to the making of such sale or contract; any contract, any option, demand, lien or pledge, or to the other claims against, or for the delivery of, property or money, any purchase, or other acquisition of or any credit upon the security of, any obligation or claim arising out of the foregoing, and any transaction or series of transactions having similar purpose or effect
• Financial leasing


  A mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the lease contract
• Lease rentals


  The periodic payments made by the lessee to the lessor
• Purchase discount


  The difference between the value of the receivable purchased or credit assigned, and the net amount paid by the finance company for such purchases or assignment, exclusive of fees, services, charges, interest and other charges incident to the extension of credit
• Receivable financing


  A mode of extending credit through the purchase by, or assignment, to, a financing company of evidence of indebtedness or open accounts by discounting or factoring
• Discounting


  A type of receivables financing whereby evidence of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value
• Factoring


  A type of receivable financing whereby open accounts, not evidenced by a written promise to pay supported by documents such as but not limited to invoices of manufacturers and suppliers, delivery receipts and similar documents, are purchased by, or assigned to, a financing company in an amount or for a consideration less than the outstanding balance of the open accounts
• Digital Financing


  Engaging in financing company activities through the use of digital platform or infrastructure such as mobile or internet and involving very limited in-person contact and interference
• Sec. 4. Grant of Authority to Securities and Exchange Commission. 


  The Securities and Exchange Commission is hereby empowered to enforce the provisions implementing regulations except insofar as the Bangko Sentral may have supervisory authority under the provisions of Republic Act No. 7653 with respect to financing companies licensed to perform quasi-banking functions, and insofar as the Monetary Board has authority to prescribe financing company rates and charges under Sec. 5 hereof.
• Financing companies


  Shall be organized in the form of stock corporation in accordance with the provisions of the Corporation Code of the Philippines
• Financing companies


  • At least 40% of the voting stock of the corporation shall be owned by citizens of the Philippines
• Minimum paid-up capital for financing companies

  • P10,000,000 for those located in Metro Manila and other 1st Class Cities
  • P5,000,000 for those located in other classes of Cities
  • P2,500,000 for those located in Municipalities
• Financing companies duly existing and in operation before the effectivity of R.A. 8556


  Shall comply with the minimum capital requirement within one (1) year from the date of the said effectivity
• Corporate name of financing companies

  Shall contain the term "financing company", "finance company", or "finance and investment company" or other title or word(s) descriptive of its operations and activities as a financing company
• Rights and powers of financing companies

  1. Engage in quasi-banking and money market operations with the prior approval of the Bangko Sentral ng Pilipinas

  2. Engage in trust operations subject to the provisions of the General Banking Act upon prior approval by the Bangko Sentral ng Pilipinas

  3. Issue bonds and other capital instruments subject to pertinent rules and regulations of the Bangko Sentral ng Pilipinas

  4. Rediscount their paper with government financial institutions subject to relevant laws, rules and regulation

  5. Participate in special loan or credit programs sponsored by or made available through government financial institutions

  6. Provide foreign currency loans and leases to enterprises who earn foreign currency by exports or other means, subject to existing laws and rules and regulations promulgated by the Bangko Sentral ng Pilipinas
• Sec. 12. Liability of lessors. 


  Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased to a third person or entity except when the motor vehicle, aircraft, vessel, equipment or other property is operated by the financing company, its employees or agents at the time of the loss, damage or injury.
• Sec. 13. Registry of financial lease.


  The Register of Deeds shall open and maintain a register of financial leases, as an adjunct to the chattel mortgage registry. Said lease register shall contain the following particulars:

  1. Name or description of property, including: a. Brand name or name of manufacturer; b. Name of model, if any; c. Year of model, or manufacture, if available; and d. Serial number, if any.
  2. Acquisition cost;
  3. Name of owner or finance company lessor;
  4. Name of lessee;
  5. Date of lease agreement or schedule;
  6. Date of expiry of lease; and
  7. Date of entry in lease registry."
• Commercial finance companies


  Non-bank lenders that provide small business loans
• Commercial finance companies


  • Can provide a wide array of business financing to businesses that don't qualify for traditional bank loans
• Loans secured by motor vehicles

  • Loans to buy autos for business use
  • Loans for resale
• Factoring


  The finance company (called a factor) usually assumes responsibility for collecting the debt, and suffers the loss if the debt becomes uncollectible
• Factoring


  • Removes the need for the company to have a credit department or be involved in the collection effort
  • Factors usually check the quality of the firm's receivables before accepting them
  • The factoring arrangement works well because the factor is able to specialize in bill processing and collections and to take advantage of economies of scale
  • Many firms like to use factors because they do not want their relationship with their customers spoiled by having to collect money from them
• Financing of accounts receivable

  The finance company receives documents from the business giving it the right to collect and keep the accounts receivable should the business fail to pay its debt to the finance company
• Financing of accounts receivable

  • Many firms prefer this arrangement over factoring because it leaves them in control of their accounts receivable
  • They can work with their customers if special arrangements are required to ensure payment
• Consumer Finance Companies


  Consumer finance companies make loans to consumers to buy particular items such as furniture and home appliances, to make home improvements, or to help refinance small debts. Typically, these companies make loans to consumers who cannot obtain credit from other sources due to low income or poor credit history. Because these loans are often high in both risk and maintenance, they usually carry high interest rates.
• Leasing


  The finance company buys the asset and then leases it to the business
• Leasing


  • Repossession of the asset is easier because the finance company already owns the asset, so no transfer of title of ownership is required
  • Finance companies that are subsidiaries of equipment manufacturers have an additional advantage over banks in repossessing and reselling the asset
  • The owner of an asset is able to depreciate the asset over time and to capture a tax savings
  • The lessee is often not required to make as large an up-front payment as is usually required on a straight loan, conserving working capital
• Floor plan loans


  • The finance company pays for the car dealership's inventory of cars received from the manufacturer and puts a lien on each car on the showroom floor
  • When a car is sold, the dealer must pay off the debt owed on that car before the finance company will provide a clear title of ownership
  • The dealer must pay the finance company interest on the floor loans until the inventory has been sold
• Floor plan financing


  • Most common in the auto industry because cars have titles that the finance company can hold to secure its loans
  • Also exists in other industries where assets with titles are involved, such as construction equipment and boats
  • A close relationship usually evolves between the finance company and the dealer, with the finance company often also providing retail financing for the dealer's customers
  • Banks also provide floor plan financing, but finance companies are often the preferred intermediaries due to their unregulated, lower-cost structure
• Sales finance companies


  Make loans to consumers to purchase items from a particular retailer or manufacturer
• Sales finance companies


  • Compete directly with banks for consumer loans
  • Used by consumers because loans can frequently be obtained faster and more conveniently at the location where an item is purchased
• Captive finance company


  A sales finance company owned by the manufacturer to make loans to consumers to help finance the purchase of the manufacturer's products
• Captive finance companies


  • Often offer interest rates below those of banks and other finance companies to increase sales
  • Profits made on the sale offset any losses made on the loans