THESIS ABSTRACT

1. Title: Lending Policies of Finance Companies in Baguio City

Total number of Pages: 303

Text number of Pages: 278

2. Author: Sharon S. Baylon

3. Type of Document: Thesis

4. Type of Publishing: Unpublished

5. Host/Accrediting Institution:

Saint Louis University (Private)

P.O Box 71 A. Bonifacio Street, Baguio City
Philippines
DECS-CAR

6. Sponsor: Fund for Assistance to Private Education (FAPE)

Legaspi Village, Makati City, Metro Manila

7. Keyword: Lending Policies, Finance Companies

8. Abstract:

8.1 Summary:

Finance companies particularly those categorized under consumer or

personal finance companies provide loans to borrowers although such companies do not
require deposits from these borrowers. Along this function, a research has been
conducted to analyze the effective and ineffective implementation of the lending policies
of finance companies in Baguio City. Each company’s profile with respect to the type of
operation, form of business, years of operation, initial and current capitalization, number
of employees, organizational set-up, sources of funds, and loanable funds, served as the
independent variables in the study. The topical discussions under the lending policies
were delimited to types of loans, criteria on lending, and terms of loans .The study
measured the extent of the implementation of these lending policies, and it determined
that the profile of these companies has no significant effects on them. With respect to
problems, the focus zeroed in on their difficulties in sources of funds, loanable funds, and
lending activities.

The study made use of the descriptive-normative survey method. The

questionnaire was the main data-gathering instrument, which was supplemented by
casual interviews. There were two groups of respondents: the, agency leaders of the
thirteen finance companies and a sample population of their clients. Both groups were
interviewed to elicit more information, which the questionnaire-checklist could not
effectively provide. For statistical treatment of the data, the percentage, mean, median,
and rank were supplied in the tables. To test whether there were significant differences
and correlations, the Kruskal Wallis, the Fisher’s t-test, and the Two-Way Analysis of
Variance were used.

8.2 Findings:

Finance companies in Baguio City have been in operation for less than 2
years to 16 years and above. Eight finance companies are branches while five are main
offices, and are adopting both the sole-proprietorship and corporation as forms of
businesses, Initial capitalization ranges from P100, 000 to P1, 500, 000 and current
capitalization from P100, 001 to P1, 500, 000 and above. In addition, these companies
employ a minimum of less than five to a maximum of 11-15 persons with 3 as the
average number of employees. Organizational set-ups are line, functional, and line and
staff organization. Sources of funds come from investments, personal funds, additional
capital, paid-in capital, and retained earnings. Loans from financiers either long-term,
medium-term, or short-term are added sources of funds. Loanable funds vary depending
on owner’s capital, additional capital, retained earnings, investments, and fixed deposits.

These finance companies extend various types of loans such as business

loans, automotive loans, salary loans, application loans, real estate loans, and character
loans. However, the character loan is least extended to the clients. Lending policies
always take into account the criteria based on the C’s of credit as character, capacity,
collateral, capital, and condition of the borrower. Moreover, regardless of the type of
loan, these companies have similar loan terms that is: loanable amount, collateral
requirements, rate of interest, mode of payment, and maturity dates.

The extent of the implementation of the lending policies as perceived by

the agency leaders of finance companies range from a fairly effective implementation to a
moderately effective implementation. However, from the point of view of the firms’
clients, the extent of the implementation of lending policies ranges from a moderately
effective implementation to a very much effective implementation. Furthermore, there is
no significant relationship between these policies and the profile of the finance
companies.

Problems encountered regarding the lending policies of finance companies

are the following: inadequate sources of funds such as personal capital; difficulty to
secure financial support; difficulty in borrowing from financiers; and difficulty in
attracting investors due to fear of loss. Problems on loanable funds include legal restraints
on foreclosure of property; risk of overlending; difficulty in dividing loanable amounts
according to the type of loan; earnings generated from operations are not sufficient due to
high operational costs incurred; small amounts of loans can be applied due to collateral
requirements; low interest on loans extended; and default of borrowers. Lastly, problems
on lending activities include payment of post-dated checks; overlending; change of
repayment terms due to matured loans; delay of the release of the loan; default in
payment of borrowers; and outside-process-service-area (OPSA}

8.3 Conclusions:

The profile of finance companies in Baguio City has shown a variation in

terms of the type of operation whether a main office or a branch and form of business as a
sole proprietorship or a corporation. Years of operation range from a minimum of less
than 2 years to a maximum of 16 years and above. Initial capitalization is from P100, 000
to P1, 500,000 and current capitalization from P100, 001 to P1, 500,000 and above.
Number of employees range from a minimum of less than 5 to a maximum of 11-15
persons and adopts a line, line and staff or functional organizational set-up. Sources of
funds come from investments, personal funds, additional capital, paid-in capital, retained
earnings and loans from financiers. Loanable funds vary from owner’s capital, additional
capital, retained earnings, investments, and fixed deposits.

The lending polices of finance companies did not show a significant

difference on the types of loans, criteria on lending, and terms of the loans. Types of
loans are business loans, automotive loans, salary loans, character loans, application
loans, and real state loans. Criteria on lending depend on character, capacity, collateral,
capital, and condition of the client. Moreover, terms of the loans identify loanable
amounts, collateral requirements, mode of payments, rate of interest, and maturity of the
loan.

The extent of the implementation of the lending policies either from a

fairly effective implementation (3.50-4.49) to a moderately effective implementation
(4.50-5.49) did not have significant effects on the finance companies in Baguio City.

Problems in terms of sources of funds, loanable funds, and lending

activities did not show significant differences in the lending policies of finance
companies. Problems on sources of funds are inadequate personal capital, difficulty to
secure financial support, difficulty in borrowing from financiers and difficulty in
attracting investors; Problems on loanable funds are legal restraints on the foreclosure
property, overlending, difficulty in dividing loanable amounts according to the type of
loans, earnings generated from operation are not sufficient due to high operational costs
incurred, small amounts of loans can be applied due to the collateral requirements, low
interest, and default of borrowers. Furthermore, problems on the lending activity are the
payments of post-dated checks, overlending, change of repayment terms due to matured
loans, delay of the release of the loan, default of the payment of borrowers, and outside-
process-service-area (OPSA).

Profile of the finance companies did not have significant bearing on the
extent of the implementation of lending policies.
 8.4 Recommendations:

Finance companies should continuously expand their business by putting

other chosen or alternative sites to reach out to the needs of their clients.

Moreover, finance companies ought to maintain a minimum initial

capitalization within their capabilities for a wide array of benefits to be availed of by
various clients.

Likewise, in terms of the finance companies problem on post-dated

checks, they should set guidelines in determining the status of the checks used as
payments by their clients. They have to ascertain that said checks are neither defective
nor are they with insufficient funds.