Business Loan Agreement (Philippines)

A Business Loan Agreement in the Philippines sets out the conditions on which money is lent, including the rate of interest, any security taken and what happens on default.

The Bangko Sentral ng Pilipinas (BSP) regulates lending by banks and BSP-supervised financial institutions through the Manual of Regulations for Banks (MORB) and numerous BSP Circulars. BSP Circular No. 1048 (2019) on credit risk management requires banks to document commercial loans with, among other things, a signed loan agreement or promissory note, a board resolution authorizing the borrowing, current financial statements of the borrower, and evidence of the loan's purpose. For foreign currency loans from foreign lenders to Philippine entities (foreign loans), BSP Circular No. 1019 (2019) requires registration with the BSP if the loan amount is USD 10 million or more, and the loan documentation must satisfy BSP's requirements for the issuance of a BSP registration document (BRD).

Under the Revised Corporation Code (Republic Act No. 11232, 2019), a corporation must be authorized to borrow by a resolution of its Board of Directors and, in some cases, by a vote of stockholders owning at least two-thirds of the outstanding capital stock, under Section 35 of RA 11232. A bank lending to a corporation must obtain a copy of the Board Resolution authorizing the specific borrowing and designating the officers authorized to sign loan documents, to confirm the loan is enforceable against the corporation.

Business Loan Agreements in the Philippines also address the Single Borrower's Limit (SBL) imposed by BSP Circular No. 425 (2004) and related issuances on banks — a bank may not lend more than 25% of its net worth to a single borrower (or group of related borrowers) without BSP approval. Large corporate borrowers with multiple bank relationships must disclose all existing loans to each lender to enable compliance with SBL requirements.

The legal framework governing the Business Loan Agreement (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Business Loan Agreement (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Civil Code of the Philippines (RA 386), Art. 1933 sets the foundational requirements.

A Business Loan Agreement in the Philippines is needed when a business entity borrows funds from any lender — bank, non-bank financial institution, private investor, or related company — and wants a thorough written contract governing all aspects of the lending relationship beyond the basic terms of a promissory note.

A Business Loan Agreement is needed when a corporation, partnership, or sole proprietorship applies for a term loan from a commercial bank, thrift bank, or rural bank licensed by the BSP, as bank lending regulations require formal written loan documentation for all commercial credit facilities above minimum threshold amounts.

A Business Loan Agreement is needed when a small or medium enterprise (SME) under the Magna Carta for MSMEs (Republic Act No. 9501) borrows from a government financial institution such as the Development Bank of the Philippines (DBP), the Land Bank of the Philippines (LBP), or a private bank under BSP-mandated SME lending programs requiring at least 8% of bank loan portfolios to go to SMEs.

A Business Loan Agreement is needed when a family-owned corporation or closely held company borrows from one of its shareholders or directors, to document the arm's-length terms of the loan, confirm compliance with the Related Party Transactions (RPT) policy required by SEC Memorandum Circular No. 10-2019 for publicly listed companies, and justify the tax deductibility of interest expense under Section 34(B) of the National Internal Revenue Code (NIRC).

A Business Loan Agreement is needed when a Philippine entity receives a foreign loan — from a foreign bank, parent company, or international financial institution — and the loan must be registered with the Bangko Sentral ng Pilipinas (BSP) under BSP Circular No. 1019 (2019) to allow the use of foreign exchange purchased from the banking system to service the loan.

A Business Loan Agreement is needed when a lender extends a revolving credit facility — a line of credit allowing the borrower to draw, repay, and redraw up to a stated maximum — and wants a master agreement that governs all individual drawdowns without the need to execute a new agreement for each drawdown.

A thorough Business Loan Agreement for Philippine corporate and commercial borrowers must contain the following essential elements to satisfy BSP lending requirements and be enforceable against the corporate borrower.

Corporate Borrower Authority: A recital of the Board Resolution authorizing the borrowing, the maximum loan amount authorized, the officers authorized to sign on behalf of the corporation, and the date of the Board Resolution. Under Section 35 of the Revised Corporation Code (RA 11232), corporate borrowings must be duly authorized. An unauthorized corporate borrowing may be voidable at the corporation's option, exposing the lender to significant risk.

Loan Purpose: A specific statement of the business purpose for which the loan proceeds will be used — working capital, equipment purchase, real property acquisition, business expansion, refinancing of existing debt. BSP Circular No. 1048 requires banks to document the purpose of commercial loans and conduct end-use monitoring for significant loan amounts. Tax deductibility of interest expense under Section 34(B) of the NIRC requires that the loan be used in a trade or business.

Financial Covenants: Quantitative financial performance requirements that the borrower must maintain throughout the loan term — minimum current ratio, maximum debt-to-equity ratio, minimum net worth, minimum debt service coverage ratio (DSCR). Breach of a financial covenant is an event of default, giving the lender the right to accelerate the loan.

Representations and Warranties: The borrower's representations at the time of signing — the financial statements provided are accurate and complete, no material adverse change has occurred, no pending litigation that would materially affect the business, all regulatory licenses and permits are in good standing, no existing defaults under other loan agreements.

Collateral and Security Documents: Description of any collateral securing the loan — real estate mortgage (REM) referencing specific TCT or OCT numbers, chattel mortgage on equipment or vehicles, pledge of shares of stock, assignment of receivables, or personal guarantee by the principal shareholders. Reference the separate security documents that must be executed alongside the loan agreement.

Events of Default: A thorough list — failure to pay principal or interest, breach of covenant, misrepresentation, insolvency proceedings (voluntary or involuntary), change of control of the corporate borrower, cross-default on other material obligations — and the lender's remedies: acceleration, enforcement of security, set-off against deposits.

BSP Compliance Provisions: For foreign loans requiring BSP registration under BSP Circular No. 1019, include a covenant by the borrower to apply for and maintain a BSP registration document (BRD), and a restriction on using bank-purchased foreign exchange to service the loan prior to BRD issuance.

Additional compliance elements for a Business Loan Agreement (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.