Loans for Private Schools

Private schools are all a rage in urban India right now. Most parents want their children to study in schools with international standards, state-of-the-art education infrastructure, and ample exposure and growth opportunities. This trend is an ideal chance for entrepreneurs wishing to invest in the education system.

However, lofty aims are not sufficient to construct and operate a private school. Private schools require a lot of investment towards construction of state-of-the-art classrooms and other learning spaces, infrastructure building and maintenance, technology and tie-ups with foreign institutions, hiring the best teachers and instructors, etc. For this, you might need to take a business loan. However, instead of taking a generic business loan, you can go for a loan targeted at educational institutions, which would offer better terms. Let us look at some of the private school loan products available in India.

SBI School Plus

The State Bank of India (SBI) and its subsidiaries offer School Plus, which aims at helping educational institutions build, maintain or upgrade their services and facilities. This loan can be taken for any of the following reasons:

• Establish, expand, renovate or modernise educational institutions
• Buying land for building or playground
• Construction of school building or auditorium
• Repair or renovation of existing building
• Buying computer, laboratory or sports equipment
• Buying books, software and other training material
• Buying furniture or fixtures
• Starting the mid-day meal scheme

You can get the SBI School Plus under 2 kinds of loan – Working Capital Loan and Term Loan. Working Capital Loan has to be repaid in 1 year, while Term Loan can be repaid in 3 to 8 years. You will need to provide collateral guarantee for loans above Rs.10 lakh, and the value of the collateral pledged should be at least 50% of the loan amount. If movable assets are bought with the loan, you need to provide hypothecation for them to the bank as well. The bank will give you up to 80% of the total cost of your project as loan. The interest rate on the loan is around 12.6%.

Baroda Vidyasthali Loan

Bank of Baroda gives loans to educational institutions for the same purpose as SBI. The minimum loan amount you can take is Rs.25 lakh, and the maximum amount you can take is Rs.15 crore. The loan amount approved would be 75% of the total cost of your project. The interest rate on the loan ranges from 10.6% to 11.85% depending on the total amount you are borrowing. The repayment period is very flexible, with up to 7 years including a moratorium period of 2 years. You need to provide the following as collateral security (depending on why you are taking the loan):

• Equitable mortgage of land and building
• Hypothecation of instruments, equipment and other movable assets bought with the loan
• Personal guarantees of the promoters of the institution

ICICI Loans for Schools and Colleges

The ICICI Bank allows schools and colleges to take loans to maintain and expand their operations. Educational institutions can borrow money in the following ways:

• Take a loan against fee receivables
• Get overdraft facility for working capital needs
• Get bank guarantees to meet performance and monetary commitments
• Get term loans for expansion

The bank does not have a fixed interest rate for its loan for schools and colleges. The rate is decided on the basis of the business profile, financial records, the required loan amount and tenure.

Varthana Secured and Unsecured Loans

Varthana is an NBFC offering loans to educational institutions for all kinds of requirements. They offer secured and unsecured loans. Secured loans – offered against a collateral security – can be obtained for a period of up to 5 years, and the minimum loan amount has to be more than Rs.5 lakh. The organisation funds up to 85% of the cost of the project. To be eligible, the schools needs to:

• Have at least 500 students on their rolls
• To be operational for a minimum of 2 years
• Have good repayment capacity and a track record of repaying EMIs regularly
• A pass percentage of at least 80% in the highest class in the school

For unsecured loans, the tenure is up to 3 years and the funding would be given for up to 75% of the project cost. The school should have a minimum of 300 students enrolled into it and adequate quotations and estimates need to be provided.

ISFC Loans

The Indian School Finance Company Private Limited (ISFC) gives several kinds of loans to educational institutions. These include:

• Loans to schools and colleges
• Loans to vocational colleges
• Loans to coaching institutes
• Loans to play schools
• Loans to SMEs in the educational sector
• Bus loan
• Teachers loan

You can get secured loans of up to Rs.2 crore and unsecured loans of up to Rs.15 lakh, depending on the kind of loan you are seeking.

Apart from these, you can approach any bank or NBFC for business loans if you wish to start or expand an educational institute. All financial institutions offer reasonable rates of interest for such loans because of the element of social service in the business cause.