backtobasics

Borrowing in the post-pandemic Philippine market means a return to a post-2008 borrowing market, though with a slight difference in magnitude. While banks remain awash with liquidity, and thus money to lend out, we also see a significant pullback from the excesses of pre-2020 lending.

In the near term, we will likely continue to  see banks engaging more with real estate collateralized loans and housing loans, as these become the staple of an industry fairly used to these types of security. More aggressive banks may push for the adoption of the receivables/contracts registry function of the Registry of Deeds, but we are not seeing this yet with the banks we engage with.

Private local and foreign investors are another source of capital that is available to a small slice of the market. A company that intends to access this capital would have had to build both the reputation and the income to match the scrutiny of the larger scale investors. Of course, high-interest loans from those already familiar with the market and likely also interested in real estate bargains are always available. In fact, they have and are continuing to making a killing in this market. Foreclosures have started for borrowers who have failed and were fully secured at the time the pandemic hit, so rescue packages that absorb these types of distressed loans are making good profits.

A good plan to survive and thrive in this changed environment is necessary. We at Dominus are helping our clients navigate this environment by following a couple of tried and true principles:

  1. Tame existing debt and costs – accounting and planning around debt and costs would lengthen the life of the business. If a business can survive, it can execute on plans for the future to grow and thrive.
  2. Plan for profit – you have to figure out where the next peso will come from. Sales and collection planning become paramount as these will determine how attractive returns could be for you or your investors.
  3. Document the plan and your options – all your findings and plans should also be properly written and calculated before being presented to potential lenders or investors. With a good plan in hand, you will be able to know how much you need at different scenarios, and what terms you could not accept.

These principles have allowed us to guide our clients to profitable solutions. We hope they can help you too in thinking about what your next steps would be in this new markets.