We have a previous discussion on the regulation of the business of lending (Part 1 and Part 2 ). On 22 May 2007, Republic Act No. 9474, also known as the “Lending Company Regulation Act of 2007,” was approved. The rationale is to regulate the establishment of lending companies and to place their operation on a sound, efficient and stable condition to derive the optimum advantages from them as an additional source of credit. The following discussion may be of help to those asking how to start a lending business (reprinted at the e-Legal Forum).

What is a Lending Company?

A lending company, which is synonymous with "lending investor," refers to a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than 19 persons. It shall not be deemed to include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law.

What is the form of organization for a lending company?

A lending company shall be established ONLY as a corporation registered with the SEC. Existing lending investors organized as single proprietorships or partnerships shall be disallowed from engaging in the business of granting loans to the public one year after the date of effectivity of the law.

What is the capital required for lending companies?

The required minimum paid up capital of any lending company is One Million Pesos. Existing lending companies shall comply with the required minimum capitalization within the time set by SEC. The SEC may also prescribe a higher minimum capitalization if warranted by circumstances.

What is the citizenship requirement?

At least a majority of the voting capital stock of a lending company shall be owned Philippine citizens. The percentage of foreign-owned voting stock in any existing lending company, if such percentage is in excess of 49% of the voting stock, shall not be increased but may be reduced and, once reduced, shall not be increased thereafter beyond 49% of the voting stock of the lending company. The percentage of foreign-owned voting stocks shall be determined by the citizenship of the individual stockholders. In the case of corporations owning shares in a lending company, the citizenship of the individual owners of voting stock in such corporations shall be the basis in the computation of the percentage. No foreign national may be allowed to own stock unless the country of which he is a national accords reciprocal rights to Filipinos.

What are the prescribed amount and charges on loans?

A lending company may grant loans in such amounts and reasonable interest rates and charges as may be agreed upon between the lending company and the debtor. However, the agreement shall be in compliance with the provisions of Republic Act No. 3765 (the “Truth in Lending Act”) and Republic Act 7394 (the “Consumer Act of the Philippines”). The Monetary Board of the Bangko Sentral ng Pilipinas, in consultation with the SEC and the industry, may prescribe such interest rate as may be warranted by prevailing economic and social conditions.