Lack of adequate finance should not be a constraint when it concerns improving or a running education institution. There are several options in the financial market for school loans that can be procured to upgrade campus infrastructure, buy new equipment for your labs/classrooms, add new facilities for students and staff or any other productive purpose.
“How to get loan for school” is no more a concern for prospective borrowers. The availability of multiple alternatives, however, makes it necessary for the borrowers to be aware of certain factors before they settle upon a particular source of funds. Let us look into six of these.
1. Does the loan require collateral?
Loans for private schools may be secured or unsecured. Many banks still ask borrowers for collateral to be pledged as security. While the low interest rate of such school loans may be alluring, the idea of hypothecating a valuable asset to the lender feels distressing. Fortunately, schools that cannot afford secured loans can get collateral-free finance from digitally enabled NBFCs, also known as FinTech companies. A FinTech lender usually does not require collateral, and issues loans based on the borrowers’ creditworthiness.
2. Is there a limit on the minimum loan amount to be taken?
Inflation rates warrant that nothing worth investing is cheap. However, why take a big loan that will entail much interest? FinTech companies keep an adequate range on the issuable loan amount to accommodate the needs of all institutions that want to apply for school loans. There are no rules requiring schools to apply for a large ‘minimum’ amount if they need merely 5-10 lakhs for the planned purpose.
3. What will be the tenure of the loan?
No institution would like to be debt-ridden for long. Payment of total interest is also high on long-term school loans. This is why it is advisable to check the tenure before accepting the funding from any lender. A FinTech company can be very accommodating and can provide a loan that can be paid back in only one year. A loan for educational institutions may also be stretched to three years.
4. What is the interest rate, processing fee and other charges on the loan?
While taking loans for private schools in India, check the interest rate and additional charges upfront. Banks and traditional NBFCs often have low interest, but their processing fee, documentation charges, legal fee, commission and a bunch of other charges may add up to a significant amount. At times, this is also necessary to cover their paper-centric loan approval process. Conversely, FinTechs that have a succinct digital application process charge a processing fee of up to 2.5%.
5. Are there any pre-closure charges?
Whether you are applying for a loan for construction of school building or to buy new equipment for teaching, your earnings may make it possible to pay off the outstanding balance earlier than its tenure. Such an eventuality is usually met with pre-closure penalties. It is advisable to check the rate of this fee before paying off a lump sum. As compared to banks, most FinTech companies have no or low prepayment charges on their loans.
6. How will the loan be repaid?
Along with the repayment charge, it is also good to check the repayment options for school loans. EMIs are the only way to pay off the debts availed from a majority of the traditional lenders. In comparison, FinTechs have flexible repayment options that can be adjusted as per the borrower’s preferences.
Capital Float is a leading FinTech lender for educational institutions in India. Visit https://www.capitalfloat.com/school-finance to know more about our school loans.
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Oct 24, 2018
SMEs play a crucial role in the economic development of India. They contribute to 45% of the industrial output, 40% of the exports and 42% of the employment in the country. Although these enterprises are highly significant to the economy, they are regularly challenged by policies, laws and processes In recognition of this, the Union Budget 2017 gave start-ups and SMEs a lot to cheer about.
Increasing Financial Viability with a Lower Tax Burden
Finance Minister Arun Jaitley announced a reduction in corporate tax from 30% to 25% for SMEs with an annual turnover of less than ₹50 crores. Moreover, the presumptive tax rate for SMEs with an annual turnover of up to ₹2 crores has been lowered from 8% to 6%. Both these measures would increase the bottom-line of SMEs. These enterprises work on low profits, and their survival is often threatened by even minor fluctuations in the business. The enhanced financial viability would increase the survival rate of SMEs.
At the same time, Budget 2017 has tried to align with the broader objective of increased digitalization. The proposed reduction in presumptive tax is applicable only for a firm’s gross receipts that are received via digital transactions. Also, no cash transaction above ₹3 lakhs would be permitted going forward. Both these measures have been designed to increase transparency and widen the tax base through digitalization.
Much Needed Breaks
Start-ups need maximum support during their initial years. From the next fiscal year, start-ups would have to pay taxes for only three out of seven years, up from last year’s exemption limit of five years, if they recorded profits. This is a great opportunity for start-ups and the economy. While a huge percentage of start-ups fail, these enterprises are responsible for introducing the most innovative products and services. The tax break announced by the Finance Minister would give start-ups a better fighting chance of survival and encourage more innovative ideas to be executed well.
Loans, Financing & Funding
The Finance Minister doubled the lending target to ₹2.44 lakh crores for the next fiscal year, making more credit available to small businesses to finance their working capital needs. Prime Minister Narendra Modi had already announced, on December 31, an increase in government credit guarantees for SMEs from ₹1 crore to ₹2 crores.
The FIPB (Foreign Investment Promotion Board) is to be abolished in the upcoming fiscal year. This would significantly liberalize policy related to FDI (Foreign Direct Investment). This is expected to boost retail and ecommerce in the country. Mr. Jaitley mentioned that further FDI relaxations were under consideration.
Most traditional banks are unwilling to give loans to SMEs due to the fear of defaults. Tax concession on provisions for non-performing assets (NPAs) and capital infusion of ₹10,000 crores for state-owned lenders would make loans more accessible to SMEs.
To encourage more investments into start-ups, the condition of continuous holding of 51% voting rights has been relaxed for carrying forward of losses by start-ups, provided the founder remains invested in the business.
Building on Digital India
While saying the almost 125 lakh people had adopted the BHIM digital payment app, the Finance Minister announced two new schemes – cashback for merchants and referral bonus for individuals.
Aadhaar Pay, the merchant version of the Aadhaar Enabled Payment System (AEPS), is to be launched shortly. This app would enable consumers to make payments without using cards, e-wallets or even mobile phones, since the merchant’s device would be linked to an Aadhaar biometric reader. More than a billion people in India already have Aadhaar cards, and this system would make most financial transactions simple, fast and traceable. It would be a boon for raising loans, enabling fintech lenders to link repayment to payments received by the SME.
The government would be targeting ₹2500 crore digital transactions in FY18 through BHIM, Aadhaar Pay, IMPS and debit cards. The Finance Minister indicated that banks would have to introduce 10 lakh new point-of-sale (PoS) terminals by March and 20 lakh Aadhaar-based PoS terminals by September, allowing more digital transactions, which would enhance financial inclusion and transparency.
For the upcoming fiscal year, the Finance Minister announced a step-up in the total allocation for infrastructure development to an all-time high of ₹3.96 lakh crores, including increased allocations for railways, road and shipping. Infrastructural development eases a huge bottleneck faced by SMEs in transporting their goods to other regions in a timely and cost-effective manner. Better infrastructure would give confidence to SMEs to expand their markets farther and reduce wastage and spoilage during transportation.
Moreover, the roll out of GST (Goods and Services Tax), which the Finance Minister indicated was tracking as planned, would further increase the ease of doing business in other states.
An allocation of ₹10,000 crores towards the Bharat Net project was announced. This would increase access to high-speed broadband across India, facilitating communication and allowing SMEs to reach out to clients located in various corners of the country in a cost-efficient way. The geographic scale achieved will help SMEs to break physical boundaries and leverage bigger opportunities for growth.
The latest Union Budget comes as a respite for start-ups and SMEs. The strengthening of these businesses would play a critical role in India’s transition to becoming an economic superpower.
Oct 24, 2018
The Goods and Services Tax or GST is ready for a rollout on July 1, 2017. Various rules, procedures and action items have already been outlined for the transition to the new, unified system of indirect taxation. Businesses and taxpayers alike are expected to embrace these changes and get ready for the new normal—the era of standardized taxation. GST is expected to impact businesses significantly, especially those with cross-location presence, with operations across states. Both large and established goods and service providers, as well as SMEs, will be significantly impacted, both in terms of financial and operational sustainability.
What is GST?
GST will enable standardization of the indirect taxation under four slabs—5%, 12%, 18% and 28%. The change in tax rules will have a direct impact on cash flows and working capital loans for businesses. From the line of credit to taxation levels and timelines, businesses will have to reassess and realign themselves. On the one hand, local and Central taxes such as VAT, Service Tax, Excise Tax and others will be subsumed; on the other hand, tax slabs may increase; for example, from 15% under Service Charge to 18% under the third GST slab. As a result, immediate available working capital finance levels will change.
GST and working capital
Working capital is a key factor in the health of a business. Businesses should focus on periodically assessing their working capital needs. The impending GST rollout makes this even more imperative. This is because the tax bucket your business falls under will change depending on various factors such as the nature of business, locational spread and more. Not just this, the rules and timelines for availing a line of credit will also be revamped under the new GST regime. This means that cash flow will be impacted, and you may need to look for new sources of working capital finance. After all, sustaining day-to-day business operations is essential to growing your business, especially if you are an SME with low financial reserves. Working capital is, in a way, a reflection of the financial health of your company.
Here are some of the key changes GST is expected to usher in:
- Input tax credits will open up: According to the current tax system, input tax credit is available only on inputs that are related to taxable output. For expenses that are not related to taxable sales, input credit cannot be availed. However, under GST, a feature called the “Furtherance of Business” has been introduced. Under this, credit is allowed for any kind of business input, irrespective of whether it is directly used for “taxable sales”. This is a positive development and increases the scope for business to avail an additional line of credit. As a result, the immediate cash requirements will reduce, and working capital flow will get better. Businesses must closely study the GST clauses to understand how to benefit from input credit across newly added areas.
- Timeline of tax payment: Under the new GST rules, the tax is levied when the stock is transferred. As a result, businesses will not be able to claim tax credits till the time of sale, which may result in a huge time lag. Working capital levels might experience a drop during this time. Evaluating working capital finance specialists such as Capital Float is recommended, to ensure that business operations remain unaffected.
- Moving goods will be easier: Under the current tax regime, a lot of time and effort is spent by companies who have multiple presence across states (warehouses, offices, factories etc.)—they need to adhere to multiple laws such as octroi, CST and so on while moving goods across state borders. This complexity adds to the cost of doing business across states. With GST, this movement of goods across the country will be simplified and more cost-friendly.
- Imports will be costlier: If your company is in the business of procuring raw materials from outside, you may experience escalated costs soon. The current import duty rate of 14% will be replaced by a standard GST rate of 18%, making imports expensive.
- Reprimands for suppliers’ non-compliance: The input tax credit levels will depend on whether your suppliers comply with taxation and financial norms. This will make it imperative for your suppliers to declare their outward supplies along with their tax payment. You will also be held accountable if your supplier fails to furnish valid returns. This is an unfavourable practice for your business since in the event of their non-compliance, your input credit tax claims can be reversed and you may have to pay interest. It is, therefore, important that you assess your vendor base from a compliance perspective to avoid impacting your working capital
These are some of the direct ways GST will impact the working capital of your business. Should you need to augment your working capital to ensure a healthy cash flow under GST, you can turn to new age fintech lenders like Capital Float who are creating innovative and customised financial products. Our term finance offering, for example, is tailored to ease your working capital crunch with features such as zero collateral requirements, 3-day loan disbursal and customized credit criteria. Click here for more GST Blogs.
Oct 24, 2018