MANILA, Philippines — The government has rolled out a program to help fund the 13th month payout of small companies, but employers fear that loan terms are not attractive enough for troubled firms that may use the money elsewhere or just opt to shut down altogether.
So far, around 21,000 micro, small and medium sized enterprises (MSMEs) secured funding under the trade department’s COVID-19 Assistance to Restart Enterprises (CARES) program, Trade Secretary Ramon Lopez said in a text message.
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Broken down, loans worth P1 billion have been released to 16,270 companies, while another 4,814 firms approved to get assistance will get around P200 million by next week. CARES has a total budget of P10 billion to assist 70,000 MSMEs.
While the assistance was welcome, Sergio Ortiz-Luis, president of Employers Confederation of the Philippines (ECOP), an industry group, said using CARES as a facility to fund holiday benefits may not be ideal.
CARES, as it is, is an assistance program from MSMEs disadvantaged by the health crisis, which means funds borrowed through the facility may be used for anything from funding company operations to buying new machineries and in this case, pay up employees their 13th month pay benefits before December 24 as mandated by law. This flexibility, Ortiz-Luis said, is a problem.
“We would have wanted a separate program for 13th month pay because when you borrow from CARES, that’s for business purposes. The company may opt to use the money for business, instead of paying the benefit,” Ortiz-Luis said in a phone interview.
Worse, while money from CARES is interest-free, the government charges hefty service fees ranging from 4% to 8% for loans payable within 1 to 4 years. The longer the payment period, the higher the charges.
“We would like to encourage even those who are on the verge of closing to borrow. If the conditions are not conducive, they might not borrow and pay the 13th month pay,” Ortiz-Luis said.
“The interest rate or service fee should be no more than 2% to be attractive,” he added.
ECOP was the one which suggested for government to lend funds to MSMEs to ensure that cash-strapped companies are able to pay their employees the mandated benefit. The suggestion came after the labor department asked economic managers to help struggling small firms finance 13th month payouts, equivalent to 1 month worth of salary for employees with at least 1 year worth of service.
For Kilusang Mayo Uno, a labor group, subsidies instead of loans should be extended by the state to MSMEs. The group even suggested rechanneling the proposed P11-billion 2021 budget for the controversial National Task Force to End Local Communist Armed Conflict for that purpose. This, however, cannot be done since next year’s national outlay is still being deliberated.
“The full payment of 13th month pay should come directly from government,” said Jerome Adonis, secretary-general, in Filipino.
Loan qualifications
That said, applications for CARES program have been trickling in. On top of the 21,084 initial batch of companies that secured funding, 372 applications had been approved and would soon be funded.
Filing for a loan has no deadline. MSMEs with financial statements filed with the Bureau of Internal Revenue in 2018 or 2019 and have no unresolved major negative credit dealings are qualified for the financing program.