Credit Financing and its Impact on Entrepreneurship Condition in Cabanatuan City

This research is entitled Credit Financing and Its Impact on Entrepreneurship Condition in Cabanatuan City. Credit is the granting of a loan and the creation of debt; any form of deferred payment which includes repayment of the original loan amount plus interest (Dave Ramsey 2014). A total of fifty (50) entrepreneurs in Cabanatuan City are chosen as the study’s respondents. These people operate small business enterprises in the locality and are regular borrowers from different lending companies in the area. Descriptive normative survey was employed as research method and the questionnaire has been employed as data gathering tool. Snowball sampling was used in locating the respondents. The study first investigated the socio-economic profile of the entrepreneurs based on their: nature of business, average gross sales per month, average net income per month, number of employees, average working capital, total capital investments, and total liabilities. The study also investigated the processes involved in borrowing capital from lending companies, the common problems related in this system, like ”payment period is short “ and “interest rate is higher” and the benefits of money-lending to the business sector and the impacts of credit financing to the business sector. The respondents’ who are all entrepreneurs has an initial capital investment started from 800,000 to one million pesos. Findings showed that most of the respondents have average working capital of 250,000 pesos and below implying they are prone to engagement in money lending activities. On the benefits of shadow banking to the business sector, the first in rank was “It helps enhance additional capital,” On the impact of shadow banking in the economic condition of community, highest in rank was “Low earners can avail of loans” and the second in rank was “Encourage small businesses” and the lowest in rank was “People become business oriented”. Keywords— entrepreneurs; deferred payment; credit financing; shadow banking; capital.

INTRODUCTION Credit financing has always been a very important business activity in many countries. In the third world countries like Philippines, average income earners resorted to credit financing so that they could put up small business. This system freed the people loan sharks who took advantage of their needs for money. In Cabanatuan City alone, a lot of lending companies have been put up to assist on small business people. With reasonable interest rates and less strictness compared with commercial banks, lending companies became popular sources of additional capital for those who are interested to build their own enterprise. The very basic foundation of money-lending companies is the shadow banking system. With this universally accepted financing activity, both the lending companies and the business people work hand in hand, and give each one a favor. While the lending companies benefited from the interest rate of their capital, the borrowers are more benefitted as they are able to secure their needed capital. There are concerns that more business may move into the shadow banking system as regulators seek to bolster the financial system by making bank rules stricter. Like regular banks, shadow banks provide credit and generally increase the liquidity of the financial sector. Yet unlike their more regulated competitors, they lack access to central bank funding or safety nets such as deposit insurance and debt guarantees (Hall 2009). In contrast to traditional banks, shadow banks do not take deposits. Instead, they rely on short-term funding provided either by asset-backed commercial paper or by the repo market, in which borrowers in substance offer collateral as security against a cash loan, through the mechanism of selling the security to a lender and agreeing to repurchase it at an agreed time in the future for an agreed price. Money market funds do not rely on shortterm funding; rather, they are investment pools that provide short-term funding by investing in short-term debt instruments issued by banks, corporations, state and local governments, and other borrowers. The shadow banking sector operates across the American, European and Chinese financial sectors and in perceived tax havens worldwide. Shadow banks can be involved in the provision of long-term loans like mortgages, facilitating credit across the financial system by matching investors and borrowers individually or by becoming part of a chain involving numerous entities, some of which may be mainstream banks. Due in part to their specialized structure, shadow banks can sometimes provide credit more cost-efficiently than traditional banks. The International Monetary Fund defines the two key functions of the shadow banking system as securitization-to create safe assets, and collateral intermediationto help reduce counterparty risks and facilitate secured transactions.

II. STATEMENT OF THE PROBLEM
This study is concerned with the credit financing system which is very common source of funding for small enterprises in Cabanatuan City. Understanding the necessary of financial sources of small business enterprise who cannot meet the requirements from traditional banking system, the researcher would like to provide significant information as to social importance of this system for the entrepreneurial benefits.

III.
RESEARCH METHODS Basically, the study is confined with the investigation on the impact of credit financing toward the entrepreneurship condition in Cabanatuan City. This study use of descriptive method of research which has been defined as a fact finding with adequate interpretation, recording and analysis of the condition that exists. It answers the question "what is' or "what is happening" at present. It attempts to discover relationships between the existing nonmanipulated variables. Questionnaire is the primary research instrument used in the study. A questionnaire is a list of planned written questions, related to a particular topic with space provided for indicating the responses to each question and intended for submission to a number of persons for reply. For data analysis, mean degree has been weighted as a form of statistical tool.

IV.
CONCEPTUAL FRAMEWORK This study is conducted to gather opinion of the entrepreneurs/borrowers in Cabanatuan City about moneylending. This study will help to further understand the problems related to borrowing from lending companies, its benefits to the business sector, small entrepreneurs, the business students and faculty and the community. With this aim in view, the researcher believed that in the pursuit for economic progress among small-medium enterprises, more potential entrepreneurs could be knowledgeable as to their partners in putting up businesses.  Table 1.1 Responses showed as per distribution of the nature of business, the appliance centers got the highest rank among the borrowers in shadow financing business. This may be due to their needs to have additional capital to sustain the market demand of their product. Market vendors also ranked significantly. They are more likely to become regular borrowers from lending institutions considering that they are capable to pay in daily basis because everyday they have collections.  Table 1.2 shows that most of the respondents have an average daily sales of about P 7,000 to P 10,000 which may show that they are capable to pay the amounts of loans. Since they have satisfactory monthly sales, they can easily obtain the trust of shadow bankers. In most cases, capability to pay is the primary concern in investigating the borrowers. Below 20,000 2 4 5 TOTAL 50 100% Table 1.3 Majority of the respondents showed they have average net income of more than P 40,000. Per month. Considering that the same is accounted after the cost of operation, the business status is not bad at all. This further validates their capability to settle financial obligation to lending companies. Though there are entrepreneurs whose net income is lower, they are still able to survive in the competition as they recover the cost of operation from their sales.  Table 1.6 To analyze the liabilities of the respondents, we can say that liabilities are mostly based on the capital investments and the existing assets. There are business which have lesser liabilities because their working capital requirement is not that big to sustain operation. Generally, shadow banking is favourable to them as their financial demands can be met.

International Journal of Advanced Engineering, Management and Science (IJAEMS)
[ Vol-6, Issue-1, Jan-2020]  https://dx.doi.org/10.22161/ijaems.61.2 ISSN: 2454-1311  Table 2 presents the processes involved in borrowing capital from shadow financing. Rank first is "completion of loan application form" Second in rank is "co-maker" and third is "collateral is required for higher amount of loan". Rank fourth is "determine period of payment" and the lowest in rank is 'character investigation is taken prior to loan approval". There were different procedures undertaken before an individual obtain loans from shadow bankers. The borrowers must complete the loan forms required by lending institution. There are policies where the borrowers should pay on daily instalments, while others allow the loan with post-dated checks as the form of payment.  Table 3 presents the common problems encountered in dealing with lending companies. First in rank is "Payment period is short", second in rank is " Interest rate is higher", third is "amount of loan is minimal" and ranked fourth is "strictness before releasing the loan" and lowest in rank is "appraisal of collateral is too low as compared to its assessed value". The presented data showed that there are certain problems in dealing with shadow banking providers. Policies are quite different from those adopted in commercial banks.   Table 4 presents the benefits of shadow banking to the business sector. First in rank was "It helps enhance additional capital", ranked second is "Address financial shortage of the company". Ranked third is "Easier to facilitate loan" and rank lowest is "sometimes do not require collateral for small amount of loans". Shadow financing have significant benefits for the entrepreneurs and the business sector in general. Respondents see the advantages of this system as it may help them avail loans faster and easier.  Table 5 presents the impact of shadow banking in the economic condition of the community. Rank highest was "Low earners can avail of loans", ranked second was "encourage small business". Third in rank was "Can make loans without collateral" and lowest in rank was " People become business oriented".

VI.
CONCLUSION In the light of the foregoing, the study concluded that shadow banking in the form of credit financing is a socially desirable financial activity in many localities. While it is true that some people have difficulties to avail of loans, there are advantages they have seen. While it is easier to avail of the loans from lending companies as compared to commercial banks, many respondents said that interest rate is higher and the mode of payment is faster. Aside from that, the appraisal is low when there is collateral as compared to its assessed market value.

VII.
RECOMMENDATIONS As credit financing has great contribution to both the business sector and the community at large, it is highly recommended that efficiency in the implementation of shadow banking principles be adopted in the Philippine setting so as to further benefit small entrepreneurs.