New Law Allows The Use Of Personal Property For Loan Collateral

A new law signed last month will grant more Filipinos to access loans by allowing them to use personal property as collateral.

Republic Act No. 11057, known as the Personal Property Security Act (PPSA), was signed by the President last August 17.

Personal Property Bill

Currently, banks and other financial institutions in the Philippines prefer land and other real estate properties over other assets as collateral for loans. This can make it difficult for micro, small, and medium enterprises (MSMEs) to get approved for needed business loans.

But with the newly signed PPSA, Filipinos can now make use of their other personal properties such as equipment and inventory for collateral purposes whenever they ought to get a loan.

(Read: How To Get Approved For A Business Loan)

What will be accepted as collateral? 

Per the law, “A description such as ‘all personal property,’ ‘all equipment,’ ‘all inventory,’ or ‘all personal property within a generic category’ of the grantor is sufficient,” stating that a description of a collateral shall be considered sufficient, whether be it specific or general, as long as it reasonably identifies the collateral.

With the new law expanding the list of assets acceptable as collateral by banks and other financial institutions, it gives MSMEs better access to financing and thus, promoting an increase in economic activity.

What does this mean for loan applicants? 

Senator Bam Aquino said in a statement in the Manila Bulletin that the approval of the law will “broaden the utilization of ‘movable assets,’” which includes accounts receivables, agricultural products, bank accounts, equipment, inventories, or even intellectual property rights providing easier access to loans.

(Read: 3 Types Of Collateral For Business Loans)

The law also mandates the establishment of an electronic national registry with the Land Registration Authority (LRA). This registry will contain information on personal properties that are registered as collateral. It will be made available to banks and could help hasten the loan application process.