A lending company is a corporation engaged in granting loans, either from its own capital or funds
sourced from no more than nineteen (19) persons. It does not include banks, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives, or other credit institutions that are already regulated by separate laws. The term is synonymous with lending investors. (Section 3, R.A. No. 9474)

A lending company must be organized as a stock corporation and include terms like “Lending Company,” “Lending Investor,” or other similar terms in its corporate name, but cannot use terms related to financing companies. It may not conduct business without being granted an authority to operate by the Securities and Exchange Commission (SEC). (Sec. 4, R.A. No. 9474 and Rule 3, IRR)

Lending companies are permitted to grant loans with amounts, interest rates, and charges agreed upon with the debtor, provided these agreements comply with:

• R.A. No. 3765 (Truth in Lending Act)
• R.A. No. 7394 (Consumer Act of the Philippines)

Additionally, the Monetary Board, in consultation with the SEC and industry stakeholders, may set
maximum interest rates based on economic and social conditions. (Sec. 7, R.A. No. 9474)

A financing company is primarily organized to extend credit facilities to consumers and various
enterprises (industrial, commercial, agricultural) through:

1. Direct lending or by discounting or factoring commercial papers
   or accounts receivable.
2. Buying and selling contracts, leases, chattel mortgages, or other debt instruments.
3. Financial leasing of both movable and immovable property.

This definition excludes banks, investment houses, insurance companies, cooperatives, and other financial institutions governed by separate laws. (Sec. 3(a), R.A. No. 8556)

To be classified as a financing company, it must be organized as a stock corporation with the following
conditions:

• 40% of the voting stock must be owned by Philippines citizens.
• Must meet the minimum paid-up capital set by the SEC.
• The corporate name must include terms like “financing company,” “finance company,” or related terms to reflect its operations. (Sec. 6, R.A. No. 8556)

Rights and Powers:

A financing company can:

1. Engage in quasi-banking and money market operations with BSP approval.
2. Conduct trust operations with BSP approval under the General Banking Act.
3. Issue bonds and other capital instruments, subject to relevant laws.
4. Rediscount its paper with government financial institutions.
5. Participate in government-sponsored special loan or credit programs.
6. Provide foreign currency loans and leases to export-oriented enterprises, subject to BSP rules.

These powers may be included in the company’s Articles of Incorporation upon obtaining the necessary
licenses from the relevant government agencies. (Sec. 9, R.A. No. 8556)

Here is a comparison between a Lending Company and a Financing Company based on the
provided information:

1. Nature of Business
   • Lending Company: Primarily engaged in granting loans from its own capital or from funds sourced from no more than 19 persons. It focuses specifically on loan issuance to the public.
   • Financing Company: Primarily extends credit facilities to consumers and enterprises (industrial, commercial, agricultural) through direct lending, discounting or factoring commercial papers, and financial leasing. It may also engage in buying/selling contracts, leases, and other forms of debt instruments.
2. Legal Exclusions
   • Lending Company: Excludes banks, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives, and other credit institutions regulated by separate laws.
   • Financing Company: Excludes banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions regulated by special laws, but not necessarily lending companies.
3. Organizational Structure
   • Lending Company: Must be established as a stock corporation and its name must include the terms “Lending Company,” “Lending Investor,” or similar terms, but not terms used for financing companies.
   • Financing Company: Must also be a stock corporation, but its name must include terms like “Financing Company,” “Finance Company,” or related terms to describe its lending and financial activities.
4. Capital and Ownership
   • Lending Company: Can source its funds from its own capital or no more than 19 persons, without specific requirements on ownership by Filipino citizens or paid-up capital.
   • Financing Company: Must have at least 40% of its voting stock owned by Filipino citizens and meet minimum paid-up capital requirements as prescribed by the SEC.
5. Regulatory Approval
   • Lending Company: Must obtain SEC authority to operate, and can only grant loans in compliance with the Truth in Lending Act and Consumer Act.
   • Financing Company: Can engage in various financial activities such as quasi-banking, rediscounting, and financial leasing, with approval from government agencies like Bangko Sentral ng Pilipinas (BSP) for specific operations. It may also operate under a broader range of financial activities beyond just lending.
6. Scope of Operations
   • Lending Company: Focuses only on lending activities, with an emphasis on providing loans to the public.
   • Financing Company: Involved in a broader range of activities including lending, factoring, buying/selling debt instruments, and financial leasing. It may also participate in quasi-banking, money market operations, and other specialized financial services.
7. Interest Rates
   • Lending Company: The interest rates on loans must be agreed upon with the debtor and comply with R.A. 3765 (Truth in Lending Act) and R.A. 7394 (Consumer Act). The Monetary Board may set interest rate caps based on economic conditions.
   • Financing Company: While also granting loans, the Monetary Board may regulate the interest rates in consultation with the SEC, but financing companies may have more flexibility to engage in diverse financial instruments, including leasing.
8. Primary Activity
   • Lending Company: Focuses on direct loan issuance to individuals and businesses.
   • Financing Company: Offers a wider range of financial services, including lending, leasing, factoring, and trading financial contracts.

Summary Table