Micro-Small-Medium Enterprises
Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Philippine economy, comprising 99.5% of all business establishments in the country and generating over 60% of total employment.
For the aspiring entrepreneur, understanding whether you fall under "Micro," "Small," or "Medium" is critical because it dictates your tax incentives, loan eligibility, and government support under the Magna Carta for MSMEs (RA 9501).
Classifications
In the Philippines, businesses are classified based on Total Asset Size (excluding the value of the land) OR Number of Employees.
| Category | Asset Size (Excluding Land) | Employees |
|---|---|---|
| Micro | Up to ₱3,000,000 | 1 - 9 |
| Small | ₱3,000,001 - ₱15,000,000 | 10 - 99 |
| Medium | ₱15,000,001 - ₱100,000,000 | 100 - 199 |
| Large | Over ₱100,000,000 | 200 and above |
- Note: If there is a conflict between asset size and employees, the agency (DTI/DOLE) usually follows the criterion that is more favorable to the enterprise for development purposes.
The "BMBE" Advantage (For Micro Businesses)
The most powerful tool for a starting entrepreneur is the Barangay Micro Business Enterprise (BMBE) Law (RA 9178).
If your assets are below ₱3 Million, you can register as a BMBE at your local City/Municipal Hall (or sometimes via DTI Negosyo Centers).
Key Benefits of BMBE
- Income Tax Exemption: You are EXEMPT from paying income tax on income arising from your operations.
- Caveat: You still pay other taxes like VAT/Percentage Tax and Local Business Tax, but the big 20-25% Income Tax is waived.
- Minimum Wage Exemption: You are legally allowed to pay wages below the Regional Minimum Wage (though you must still pay SSS/PhilHealth/Pag-IBIG). This helps beginners who cannot afford standard rates yet.
- Priority Lending: Government financial institutions are mandated to provide a special credit window for BMBEs.
Financing Options for MSMEs
One of the biggest hurdles for MSMEs is capital. The government has set up specific channels to address "unbankable" businesses (those with no collateral).
- Small Business Corporation (SB Corp)
- The financing arm of the Department of Trade and Industry (DTI). They offer:
- * P3 Loan (Pondo sa Pagbabago at Pag-asenso): Aimed at market vendors and micro-entrepreneurs to fight "5-6" lenders. Interest is low (approx. 2.5% per month) with no collateral.
- * Rise Up Loan: Multi-purpose loans for businesses recovering from the pandemic.
- SETUP (DOST)
- The Small Enterprise Technology Upgrading Program by the Department of Science and Technology.
- * How it works: If you are in manufacturing (food, furniture, metals), DOST will buy the equipment you need (e.g., a packaging machine) and lend it to you. You pay them back in 3 years with ZERO interest.
Government Support Agencies
- DTI "Negosyo Centers": By law, every municipality must have a center to help with registration and business advisory.
- Go Negosyo: A non-profit advocacy founded by Joey Concepcion that partners with the government to provide free mentorship and "Kapatid" programs (linking small businesses to big corporations).
Pitfalls and "Gotchas"
- The "Land" Confusion
- Many owners think they are "Large" because they own the land their factory sits on.
- * Correction: The law specifically excludes the land from the asset calculation. You might have a ₱20M lot, but if your factory equipment and cash are only ₱2M, you are still a Micro enterprise and can apply for BMBE perks.
- The "Bank Loan" Reality
- Despite the Magna Carta requiring banks to lend to MSMEs, most private banks (BDO/BPI) are still strict with collateral.
- * Strategy: Do not rely on private banks for your first 2 years. Build your credit history with SB Corp or Cooperatives first.
- BMBE vs. BIR
- Registering as BMBE at the City Hall is not enough. You must bring your BMBE Certificate to the BIR to update your Certificate of Registration. If you don't update the BIR, they will still charge you Income Tax.
