IMPACT OF RECOGNIZING THE PURCHASED MONEY SECURITY

INTEREST IN TERMS OF LOANS IN THE BUSINESS

AKESHA FAYE B. CABIGON

DARREN O. GANDINAO
ROWELYN P. LLAGAS
UNIECE U. SACAY

SUBMITTED TO THE FACULTY OF SALAY SENIOR HIGH SCHOOL

SALAY NATIONAL HIGH SCHOOL IN PARTIAL FULFILLMENT
KIND OF THE REQUIREMENTS FOR THE SUBJECT
INQUIRIES, INVESTIGATION AND IMMERSION

ACADEMIC-ACCOUNTACY BUSINESS MANAGEMENT

MAY 2024
 1

INTRODUCTION

Background

Security interest is a enforceable legal claim or lien on collateral that has been pledge,
usually to obtain a loan. The borrower provides the lender with security interest in a certain assets,
which gives the lender the right to repossessed the part of the property if the borrower stops making a
loan payment. The lender can sell the repossessed collateral to pay of the loan. It is also lower the risk
for the lender and, in return, allows the lender must also "perfect" its security interest to make sure no
other lender has the right to the same collateral. A perfected security interest is any secured interest in
an assets that cannot be claimed by any other party.

Lender have a several options to protect their financial interest if the debtors fail to
live up to their financial obligations. Financial companies may be able to pursue consumer who
stop making payments for their debts by sending them to collateral collection, taking legal
actions, enforcing liens, or taking out special interest such as purchase money security interest.

Purchase Money Security Interest (PMSI) refers to a legal claim that allows lenders
to either repossess property financed with its loan or demand payments in cash if the borrower
defaults. PMSI is valid most jurisdictions some of the buyer's agreement of it's lender files and
financing statement. The procedure is suited in the article 99 of the Uniform Commercial Code
(UCC) the standardized business regulations adopted by most states. Base on the reviewed
study of Catalano ( 2023).

Objectives of the Study

This study examined to determine the role and possible risk impact of making loan
decisions;

Specifically, the study aims to;

1. determine the offering of security interest loans increase access to credit for
specific borrower groups.

2
 2. determine the security interest impact on the borrower behaviour.

3. find out the potential risks and of security interest loans.

4. determine the design of security interest loans be optimised to balance

creditors protection with borrower affordability.

Statement of the Problem

This study examined the general financial state and recognise how to purchase
money security interest in business and banks.

This study aimed to answer the following questions;

1. Does offering security interest loans increase access to credit for specific
borrower groups?

2. How do security interest loans gives impact to the borrowers behaviour in

terms of repayments rates and default risks?

3. What are the potential risks and of the security interest loans?

4. How can the design of security interest loans be optimised to balance creditors
protection with borrower affordability?

Significance of the Study

It helps the lenders to understand the concept of security interest in terms of

enforceable legal claim or a collateral.

It is also important for business or banks owners to know more knowledge and to
recognize how to purchase money security interest in the business and banks which can gives
initial claim on property to entities that finance purchase made by a consumer or other debtors.

Scope and Delimitations

 The aim of this research is to investigate and to recognize the purchasing money
security interest in the business and banks. This research mainly focuses on the financial state
of the business and banks which is a broad therefore banking sector is selected among other
services institutions. Quantitative methodology is used for the purpose of this research. Survey
are conducted, some people are involved in developing policies or procedures to improve
purchasing money security interest in the business and banks.

The research is done in the banking sector and the data is gathered from different
banks and business. Therefore, the result of the Study could be applied up to some same banks
and business but cannot be generalized for the whole industry.

Definition of Terms

For the purpose of this study, the following terms are defined to facilitate
misunderstanding by the reader;

Purchase to acquire by means other than decent.

Banks an establishment for the custody loan exchange on issue of money for
extension of credit, and for facilitating the transmission of funds.

Loan is the time it takes to pay off a loan with regular payments.

Lending refers to the conditions and details of a loan agreement, including

interest rates, repayments schedule, and any fees or penalties.

Interest the specific conditions of the interest rate, including fixed or variable
rates, compounding frequency, and related fees or penalties.

THEORETICAL FRAMEWORKS
 Review of Related Literature

Hayes (2012) Article 9 is an article under the Uniform Commercial Code (UCC)
that governs secured transactions, or those transactions that pair a debt with the creditors
interest in the secured security. Article 9 regulates the creation of security interest, and the
enforcement of those interest, in movable or intangible property and determine the legal right
of the ownership if a debtor does not meet their obligations.

Secured loans required lien since the loan banked by a collateral asset. Secured
loans can be offered against arrange of collateral types, the most common in being real estate
used mortgage loans. Other types of collateral loans include secured loans commercial
equipment, automobiles, art of jewelry,. Secured loans with high value collateral associated
with the lending agreement with typical needs to take appropriate legal steps for perfecting a
lien according to Kagan ( 2020).

Therefore, when providing a loan, a bank of lending institutions may require

collateral. Collateral reduces the risk to the lender in the event that the borrower could no
longer meet their debt obligations. In this case, the lender can legally seize the asset pledge as
collateral, sell it, and use the proceeds to pay of the debts, Kenon ( 2021).

A purchase money security interest under the Uniform Commercial Code UCC
provides for a exception to the general" first in time, first in priority" financing statement filling
structure for perfecting security interest, since PMSI will have a priority over previously
perfected security interest in the same collateral. Specifically, UCC section 9324 provides that a
PMSI is good priority were in conflicting prior group is perfected the security interest in the
same good so long has the lender complies with the UCC rules for filling, timing and notice ( for
inventory financing). There is no question as to the validity and super priority of a PMSI in favor
of a lender that provides 100% of the acquisition financing to a borrower for goods at the time
of a acquisition of goods. However, often a down payment is paid by the borrower to the
supplier prior to the funding of the loans. The open question is the impact of the down
payment on the PMSI, Tannenbaum et,al (2023).

At the same time, most Business owners are likely familiar with the UCC fillings,
especially considering UCC are essential for those seeking for business loan. Only someone
authorized by the debtor is allowed to file but an authorized parties can just as easily file a UCC-
1 claim against your business without your knowledge. This can be troublesome for your
business as the UCC-1 filling is on public record, Feldman (2021).

Barone (2023), says that lender provides the funds for variety of reasons, such as a
home mortgage, an automobile loan, or an small business loan. The term of the loan specify
how it must be satisfied and the consequences of missing payments and default. A lender may
go to a collection agency to recover any funds that past due.

Financial institutions offer a much saver investors funds with those seeking funds,
such as borrowers or business seeking trade balance for ownership funds. Typically, this lead to
future payments from the borrower or business to the saver or investors. The tools for
matching all those parties up include products such as loans, and markets, such as a stock
exchange. At the most basic level, financial institutions allow people to access the money they
need. For example, although banks do many things, their primary role is to take in funds called
deposit from those money, pool the deposit and lend the money to others who need funds.
Banks are intermediaries between depositors, and the borrower Hayes, (2023).

In addition, the study of Kajan ( 2023), before a lender issue a loan, it wants to know
that you have the ability to repay it. That's why many of them require some of security. This
Security is called collateral, which minimize the risk for lenders by ensuring that the borrower
keeps up their financial obligations. The borrower has a compelling reason to repay the loan on
time because if they default, they stand to lose their home or other assets pledge as collateral.

Base on the article of Chen (2021), when lending out money secured debt is often
associated with borrower that have poor credit worthiness. Because the risk of lending to an
individual or company with a low credit rating is high, securing the loan with collateral
significantly reduces that risk.

Prospect Theory

Prospect theory offers a compelling lens to analyze how individual and business makes
a decision regarding security interest, particularly in the context of lending and borrowing it is
not an absolute predictor but a powerful tool for gaining insights into human behaviour. By
applying it to security interest, both lenders and borrowers can make more informed and
strategic decisions. Understanding how prospect theory shapes borrower behaviour can inform
loan structuring and risk management strategies. Consider offering risk sharing mechanism or
adjusting interest rates based on performance to address borrower loss a version.
Walker( 1997)

Economic Expectations

The economic expectations surrounding security interest can be analysed from different
perspectives depending on the specific context and stakeholders involved. Securing their loans
with collateral, lenders are less exposed to risk, allowing them to offer lower interest rates to
borrower. This can stimulate economic activity as business and individuals have access to more
affordable credit Loewenstein ( 1954).

Rational Expectations Theory

The impact of Rational Expectations Theory ( RET) on security interest needs to be

considered from both the lender and borrowers perspective. Lenders understand that borrower
from their own expectations about future economic conditions, interest rates, and their ability
to repay. This necessities careful assessment of borrower expectations during risk analysis and
loan structuring. Consistent and transparent communication from lenders is crucial to maintain
borrower confidence and align thier expectations with reality. This helps mitigate the risk of
negative expectation triggering undesirable outcomes, Rogoff (1953).

Single- Person Theory of Decisions

This is a broader field within decision theory that focuses on how individuals make decisions
when they are the only actor involved. This encompasses many well-known frameworks like
Expected Utility Theory, and Regret Theory No single theory perfectly captures the complexity
of individuals decision making in business. Effective business decisions often involve integrating
insights from various theoretical frameworks. El-Maud et.al (2015).

Conceptual Framework

This study was anchored on the following theoretical

Privacy The Impactconcept
of which relates to
Recognizing
investment decisions. The innovation of recognizing the purchasing PMSI In
interest are to demonstrate
Trust
terms
methods appropriate for creating financing decisions in a business. of loan on
Integrity business.
Business and banks can optimize its sake value if the company can implement
the proper andLoan
goodSecurity
financial management functions. There financial management functions
are related to financing decisions and funding decisions. State that a business or banks must be
able to make appropriate and wise financing decisions are one of the importance factors
related to financing, the business asset's in the hope that the current expenditures can
generate feedback in the form of a high rate of return for the present.

Research Paradigm

Independent Variables Dependent Variable

Figure 1. Schematic diagram showing the relationship between independent and

 dependent variable.

Hypothesis of the Study

The following are the hypothesis of the Study;

1. There is a significant effect of recognizing loan security interest on businesses.

2. There is significant effect of making a loan Security Interest.

METHODOLOGY

This section includes the research design, research Subject instruments used
in the data gathering procedure and the statistical analysis.

Research Design

This study utilize the causal research design using survey questionnaire and
determine the load and good outcome/ results for recognizing the purchasing money security
interest in some business and banks, of Salay Misamis Oriental, Salay who are exposed to the
impact of using security interest.

Research Subject

Seven(7) intact business loaners in Salay Misamis Oriental were the subject of
the Study.

Instrumentation
 This study used questionnaire that are used to survey business loaners that are
using security interest. The questionnaire was develop based on the study's objective.

Impact of Recognizing Security Interest in Business

The questionnaire is consisted of twenty (20) item administered to all the respondents in the
study to recognize the Impact of PMSI for the business. We used the rating scale questionnaire
to our survey we conducted. The researchers questionnaire that we used is a formal term for a
questionnaire with answer choice.

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Return on Investment

Calculating the ROI on a security interest can be complex, but its an essential exercise for
business and lenders to understand the financial benefits and risks of using this form of
collateratization.

Return Frequency

The security interest is in an income generating asset like stocks or bonds you might receive
regular interest payment, which represent a"return" in the form of cash flow. The frequency of
these payments depends on the specific assets and its insurance terms.
 13

Risk Involved

Loans with security might have higher interest rates compared to unsecured loans, reflecting the
perceived lower risk by the lender.

Inflation Rate

As inflation rises, the real value of debt (both principal and interest) decreases, making it easier
for borrowers to repay in normal terms. This can be seen as a benefit during periods of high
inflation.

Volatility

Volatile assets might subject borrows to margin calls, requiring additional capital and potentially
hindering their financial stability.
 14

Task Benefits

If you use a loan secured by a security interest for business purposes, the interest payments you
make on the loan are generally tax-deductible. This effectively reduces your taxable income and
potentially lowers your overall tax burden.

Liquidity

Borrowers have access to a large pool of potential lenders when offering highly liquid assets as
collateral, potentially increasing their chances of securing favorable loan terms.

Safety

Granting a security interest, the borrower surrenders some control over the asset. The lender
might impose restrictions on usage or disposal of the asset, limiting the borrower's flexibility.
Depending on the loan agreement and type of security interest,the borrower might be personally
liable for the debt even if the collateral doesn't cover the full amount owed. This adds to the
financial risk by the borrower.
 15

Data Gathering Procedures

A permit to gather data from identified respondents was request from the
Barangay Captain of Poblacion Salay. When permit is obtain, the researcher oriented the
business loaners how the study would be implemented.

To determine the impact of recognizing PMSI on business, as Impact survey

about loaners which consists twenty (20) item was administered questionnaire. The
questionnaire was administered the business loaners prior performance and financial flows of
their business loans.

Statistical Techniques

For the statistical analysis of data, the following techniques were used.
Descriptive Statistical such as the mean, standard deviation and percentage were used to
analyse the data obtain from survey conducted.
 PRESE
NTATION, ANALYSIS AND INTERPRETATION OF DATA

This chapter present the interpretation and analysis of data on the characteristics, and
individual behavior in Loan Security Interest.

The borrower’s Financial Proficiency towards Loan Security Interest.Borrower’s Financial

Proficiency towards Loan Security Interest. Addressed one (1) indication to find out now the
borrower feel and respond in Loan Security Interest.This include the concept in Loan Security
Interest presented in table 1, the borrower’s obtained a mean score 4.895 (Agree) and the
following “ Strongly Agree” statement such as “ I know why is it necessary to make a loan in my
business”; and “ I am able to visualize the benefits in my loans.

Table 1. Mean scores for victims attitude towards investment fraud.

INDICATOR MEAN QUALITATIVE INTERPRETATION

1.I know why is it necessary 4.1 Positive

to make a loan on my business

2.I know the risk associated 3.1 Moderately Positive

with my loan.

3.I am proficient on what are 3.7 Positive

the returns of my loans.
4.I consider my self as a good 3.4 Moderately Positive
loaner.

13

5.I am able to visualize the benefits 4 Positive

on my loans.

6.I am confident to be a creditworthiness 3.2 Moderately Positive

borrower before extending a loan

7.I am confident in terms of my conditions 3.1 Moderately Positive

for the loan, including interest rates and
repayment schedules

8.I am interested on borrowing a risker loan 3.4. Moderately Positive

for better returns.

9.I usually borrow a loan on the banks which I 3.5 Positive

trust with.

10.I borrow loan in the banks who have stable 3.7. Positive
expected returns.

11.I am a loner who has develop a strong 3.2. Moderately Positive

sense independence and self-reliance
since spend a lot of time managing things
on my own.

12.I am avid consumers of information and 2.8. Moderately Positive

appreciate date over emotions when
making decisions.

13.I am confident to understand the loan 3.5. Positive

I’m making.

14

14.I believe that being a responsible 3.7 Positive

borrower will help me to become
a trustworthy loaner.

15.I am risk-taker when making a loan. 3.1 Moderately Positive

16.I am a diligent borrower about making 2.8 Moderately Positive

timely payments.

17.I might also face issues with my payment 2.8 Moderately Positive
methods or encounter delays in
processing payments.

18.There could be various reasons why me 3.1. Moderately Positive

as a borrower didn’t pay on the exact date.

19.Factors such income stability, budgeting. 3.7 Positive

skills, and overall financial responsibility
can all influence a borrower’s repayment
behavior.

20.I diversify my loan portfolio to spread risk 3.8 Positive

and minimize potential losses.

Over All Mean 4.895 Positive

Legend:
Scale Range Descriptive Rating Qualitative Interpretation
5 4.51-5.0 Strongly Agree Highly Positive
4 3.51-4.5 Agree Positive
3 2.51-3.5 Undecided Moderately Positive
2 1.51-2.5 Disagree Negative
1 1.00-1.5 Strongly Disagree Highly Negative

15

The results signified a favourable behaviour toward loan security interest which indicated that
the loan security interest was found good for borrowers loan planning and give more benefits.

According to Johnson P.( 1993) the results indicate that their need for loan arose when
workers were short of money rather than when they had high expenditures. It is therefore not
surprising that the households who more often experienced income shock also took loans more
frequently.

The borrower's profile, their need for more money, their lack of resources in life, their
desire on persuade others, their lack of trust, and there irresponsibility all contributed to their
fall victim on loan security interest according to the findings.

The following "agree" of the statements such as " I know is it necessary to make a loan on
my business", " I am proficient on what are the returns of my loans"," I am able to visualize the
benefits of my loans," "I am confident to understand the loan I'm making", " I believe that being
a responsible borrower will help me to become a trustworthy loaners", " Factors such as
income stability,, budgeting skills, and overall financial responsibility can all influence a
borrower's repayment behaviour", and " I diversify my loan portfolio to spread risk and
minimize potential losses".

The individual variations in their capacity to learn from loan security interest advantages
were linked at higher assets, and variations in each borrower capacity to absorb financially.
 Based on the agreement of Taylor(2024) borrower who qualify for a personal loan with a
lower interest rate than their credit cards can streamline their monthly payments and save
money.

16

However, the respondents of loan security interest were " undecided on the following
statement "I know the risk associated with my loan ", " I consider my self as a good loaner", " I
am confident to be a creditworthiness borrower before extending a loan", " I am confident in
terms of my conditions for the loans including interest rates and repayment schedule", " I am
interested on borrowing a risker loan for better returns", " I am loaner who has develop a
strong sense independence and self-reliance since spend a lot of time managing things on my
own", " I am a avid consumers of information and appreciate data over emotions when making
decisions", " I am diligent borrower about making timely payments", " I might also face issues
with my payment methods or encounter delays in processing payments", and " There could be
various reasons why me as a borrower didn't pay on the exact date".

The deceitful borrower managers might take advantage of persuasive bias in loaning plan
with a choice component but not entirely successful in persuading borrower on loan to behave
or act appropriately.

If you're considering a personal loan get quotes from several lenders to compare Interest
rates and loans terms .

As shown on table 1, the summary of respondents means score on one indicator on borrowers
behaviour toward loan Security Interest is 4.895 (positive). This means that under of the study
were found that then agree on borrowing a loan on a bank who has Security Interest. This
implies that they have valued there borrowed loans in their unique behaviours.
 17

SUMMARY, CONCLUSION AND RECOMMENDATION

This section promotes the summary of findings, conclusion on analysis of characteristics and
individual behavior to loan further studies.

Summary

The following significant findings the were drawn from the study’s;

The study investigated, the individual behavior and attitude in loan security interest in Barangay,
Poblacion, Salay Misamis Oriental, Specifically, the study aimed to (1) determine the offering of security
interest loans increase access to credit for specific borrower groups; (2) determine the security interest
impact on the borrower behavior; (3) find out the potential risks and of security interest loans; (4)
determine the design of security interest loans be optimized to balance creditors protection with
borrower affordability.

Descriptive research design using survey questionnaire to determine the attitude and
individual behavior in loan security interest. The instrument made use of attitudinal, survey and
questionnaire.

The borrower’s attitude as exposed to the implement strategy reflect that the self-concept
of borrowing a loan obtained mean score 4.895 which indicated on overall “positive” behavior.

Analysis on the borrower’s attitudes showed significant at 0.05 level this accept the null
hypothesis that there is significant in individual differences to loan security interest.

Conclusion

Based on the findings of the study, the following conclusion were drawn.

The borrower’ fostered positive attitudes towards the self-concept of Loan Security Interest as
indicator to respondents showed more intensively and demonstrated favorable attitude towards Loan
Security Interest. This provides that an individual’s vulnerability to Loan Security Interest is a result of
their own personal goals.
 18

Recommendations

In the light of this findings the borrower's found that adhering to different payments
techniques reality assisted them in overcoming the downfall that their failed loan has caused.

The greater focus that these initiatives and similar ones place on the issue of loan security
interest.
 ABSTRACT

Loan Security Interest has a social problem now, due to its erratic operation and rising rate. Along
with expand and grow everywhere and at any moment fraudulently. To determine the attitude and
individual behavior in loan security interest. According to the findings the borrower’s profile, their need
for more money, and lack of resources in life all contributed to give them ideas on borrowing a loan.

The respondents means that they are willing to accept on borrowing a loan with security interest is
4.895 (positive). This means that under of the study were found that they agree on self concept of loan
security interest.

Descriptive research design using survey questionnaire to determine the attitude and individual
behavior in loan security interest. The instrument made use of attitudinal, survey and questionnaire.

The borrower’s attitude as exposed to the implement strategy reflect that the self-concept of
borrowing a loan obtained mean score 4.895 which indicated on overall “positive” behavior.

Analysis on the borrower’s attitudes showed significant at 0.05 level this accept the null hypothesis
that there is significant in individual differences to loan security interest.
APPENDICES
 ACKNOWLEDGEMENT

The researcher would like to sincerely thanks and heartfelt gratitude to all who gave their support to the
researcher in making this study reality;

To Hon. Mayor Angelo Capistrano Jr. for all your support your guidance was invaluable.

To our beloved Inquiries, Investigation, Immersion adviser Mrs. Karen C. Rizalda thanks for being able to
guidance and support us to complete our research paper.

To the respondents thank you for your time and cooperation to answer our survey questionnaire.

To our beloved parents, groupmates, family and friends thanks for your constant encouragement and
understanding during this journey. You believe in our abilities has given us with confidence to explore
new ideas. Thank you and may God bless you.

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BIBLIOGRAPHY

A'HEARN, B., AMENDOLA, N., & VECCI G. (2016). On historical household budgets,
working paper no. 45(MAY). Institute for New Economic Thinking.

ALTER, G., GOLDIN, C., & ROTELLA, E. (1994) The savings of ordinary Americans: The
Philadelphia saving fund society in the Mid-Nineteenth Century. https:// doi.org/ https://
doi.org/10. 1017/ S0022050700015473.
BACKLUND, D., & LIISA K. (2019). Adolescent impact on family economy in sweden during
the first decades of the Twentieth century. https:// doi.org/ https://doi.org/ 10.1177/
036319918787562

BRANDT, L., & HOSIOS, A.J. (2010). Interest- free loans between villagers. Economic
Development and Cultural change. https:// doi. org/ https:// doi.orh/10. 1086/698184

JOHNSON, P. (1985). Saving and spending: The working -class economy in Britain 1870-1939.

JOHNSON, P. (1993). SMALL DEBTS AND ECONOMIC DISTRESS IN ENGLAND AND

WALES, 1857-1913. https://doi.org/ https:// doi.org / 10.2307/2597680.

TABLE OF CONTENTS

INTRODUCTION

Background of the Study

Statement of the Problem

Objectives of the Study

Significance of the Study

Scope and Delimitations of the Study

 Definition of Terms

THEORITICAL FRAMEWORK

METHODOLOGY

Research Design

Research Subject

Instrumentation

Data Gathering Procedure

Statistical Techniques

BORROWERS BEHAVIOR TOWARDS

LOAN SECURITY INTEREST

SUMMARY, CONCLUSION AND RECOMMENDATIONS

Summary

Conclusion

Recommendation

BIBLIOGRAPHY

APPENDICES

LIST OF APPENDICES

APPENDIX

A Letter of Permit to Conduct a Study

B Letter of Request
C Survey Questionnaire

D Documentation