Law OKs car as bank loan collateral

Borrowers can now use other valuables, like pieces of equipment, bank deposits and inventory, as collateral when applying for loans with banks and other financial institutions.

President Duterte on Aug. 17 signed Republic Act No. 11057, or the Personal Property Security Act, which gives micro, small and medium enterprises (MSMEs) improved access to financing from banks and lending institutions.

The law provides the “creation, perfection and determination of priority, establishment and centralized notice registry and enforcement of security interests in personal property.”

Easing requirements

It expanded the list of assets acceptable to banks and other financial institutions as collateral, noting that “a description of collateral shall be considered sufficient whether it is specific or general if it reasonably identifies the collateral.”

“A description such as ‘all personal property,’ ‘all equipment,’ ‘all inventory’ or ‘all personal property within a generic category’ of the grantor is sufficient,” the new law said.

Most banks, financial institutions and formal lending firms prefer real estate and other “immovable assets” as collateral.

Small-scale

This makes it difficult for small-scale entrepreneurs to apply for loans for their businesses.

“It is the policy of the State to promote economic activity by increasing access to least cost credit, particularly for MSMEs, by establishing a unified and modern legal framework,” the law said.

The law also requires the establishment of an electronic registry by the Land Registration Authority to reduce the risks involved in banks accepting “movable” collateral or those that are not in real estate.

The registry will contain information on personal valuables that were used as collateral as an assurance for banks and lenders that any collateral being offered to them has not yet been used for another loan.

Sen. Bam Aquino, the law’s author in the Senate, said improving access to financing for small businesses would “broaden the utilization of ‘movable assets,’ like bank accounts, accounts receivable, inventory, equipment, vehicles, agricultural products and even intellectual property rights.”