Expanding a school requires considerable investment in classrooms, laboratories, technology, furniture, and other infrastructure. For many school owners and leaders, a school infrastructure loan can provide the capital needed for these improvements without having to dip into funds reserved for day-to-day operations. In India, schools can explore several financing options, including business loans from banks and loans from Non-Banking Financial Companies (NBFCs). Banks may offer school financing as part of their business or institutional lending products, while NBFCs offer a range of loan products to eligible borrowers. Each option has different eligibility requirements, interest rates and repayment terms.
If you are a school owner, leader, or trustee wondering whether to take a loan from a bank or NBFC, here is a complete lowdown on the pros and cons of each option and what the best option for taking out a school infrastructure loan is.
Purpose of a School Infrastructure Loan
A school infrastructure loan can help you pay for essential upgrades, expansion and new facilities. Depending on your requirements, you can use the loan to:
- Build or renovate classrooms
- Set up science and computer labs
- Purchase and install smart classroom technology
- Improve libraries
- Develop sports facilities and playgrounds
- Create extra-curricular activity spaces
- Construct additional floors or buildings for school expansion
- Upgrade sanitation and drinking water facilities
Bank Loans for School Infrastructure
Large banks offer financing for school construction, renovation and expansion, making them a common natural choice when you are considering a loan for school infrastructure. Key advantages of bank loans for school infrastructure are:
- Higher funding limits: Some banks offer loans of ₹10 crore or more for eligible educational institutions, making them suitable for larger projects.
- Multiple credit facilities: Depending on the lender, you may access term loans, overdrafts, or other credit facilities for your needs.
- Dedicated education products: Some banks have products specifically covering school construction, renovation, equipment, laboratories, furniture and other institutional requirements.
- Longer repayment periods: Certain bank products offer repayment periods of up to 10 or 15 years, which can spread repayments over a longer period.
Bank financing can be useful for school expansion, but it isn’t without challenges. Here are some of the cons of bank loans for school infrastructure:
- Strict eligibility requirements: Banks may require an established operating history, longstanding credit records that are satisfactory, and documented cash flows.
- Collateral requirements: A school infrastructure loan from a bank may require the borrower to put up the school property or other assets as security and accept specific collateral coverage requirements.
- Less flexibility in repayment: Loan structures usually follow a standard repayment plan rather than being designed around a school’s fee-collection cycle or seasonal cash flows.
- Approval conditions for construction: Construction or renovation financing may require approvals from relevant authorities before the bank considers the facility.
NBFC Loans for School Infrastructure
NBFCs are, on other hand, another financing option for school owners planning infrastructure expansion. NBFC loans for private schools can offer a degree of flexibility in how school-specific financing is structured. Key advantages include:
- More varied lending models: NBFCs can offer loan products and structures that differ from traditional bank financing.
- Alternative eligibility criteria: NBFCs may assess borrowers using their own credit policies, which can provide an alternative when you do not meet a traditional bank’s lending criteria.
- Unsecured borrowing: Some NBFCs offer loans without requiring property or other assets as collateral, subject to eligibility.
- Flexible loan structures: Some NBFCs offer different repayment periods and loan structures, allowing you to compare financing against your school’s requirements.
- School-focused assessment: Education-focused NBFCs like Varthana assess factors such as student enrollment, business vintage, school track record and repayment history. This means a loan assessment that veers away from relying solely on traditional lending parameters and instead, considers your school’s operating performance and repayment capacity.
While NBFC loans for private schools have certain distinct advantages, they also have limitations. These are:
- Potentially higher borrowing costs: NBFCs may price loans differently from banks based on the borrower’s risk profile, which could result in a higher interest rate and greater total repayment.
- Additional fees: Processing, foreclosure, prepayment and other applicable charges can contribute to the overall cost of the loan. Some NBFCs may levy higher charges than those associated with traditional bank loans, so borrowers should consider them alongside the interest rate.
- Different terms across lenders: Interest rates, collateral requirements, tenure and fees may differ between NBFCs, so it is important to compare the total cost and terms before borrowing.
NBFC vs Bank School Infrastructure Loan Comparison
The table below presents a succinct NBFC vs bank school infrastructure loan comparison. Check out the key differences you should consider when evaluating the two financing options.
| Factor | Bank School Infrastructure Loan | NBFC School Infrastructure Loan |
| Eligibility | May involve stringent eligibility criteria, including operating history, credit records, and documented financials. | Eligibility criteria vary by lender and may provide an alternative to conventional bank requirements. |
| Collateral | Infrastructure financing may require property or other assets as security. | Some NBFCs offer unsecured financing options, subject to eligibility. |
| Loan Structure | Standardized lending and repayment structures are usually followed. | Some lenders offer more flexible loan structures and repayment terms. |
| Assessment | Typically considers financial statements, credit history, banking relationship, and collateral. | Assessment criteria vary and may consider a broader range of borrower-specific factors. |
| Processing | May involve multiple documentation and approval requirements, particularly for construction projects. | Processing requirements and turnaround times vary by lender; NBFCs may have faster processes for certain loan products. |
| Cost | Interest rates and fees vary according to the borrower, loan, and bank. | May carry higher interest rates or additional charges depending on the lender and borrower risk profile. |
| Funding Options | Banks may provide term loans, overdrafts, and other credit facilities. | NBFCs offer different loan products depending on their lending model and eligibility criteria. |
Why Varthana is an NBFC with a Difference
While NBFC loans for private schools offer certain distinct advantages, a school-focused NBFC like Varthana goes a step further.
Driven by the mission to transform school education by financially empowering private schools in India, Varthana does much more than simply providing a school infrastructure loan. Varthana combines financing with guidance and support to help you address infrastructure gaps, strengthen school operations, plan for sustainable growth and boost student outcomes. Thus, you can rely on Varthana as a partner that will help your school achieve sustained growth and success.
Key features of a school infrastructure loan from Varthana include:
- Collateral-free financing for smaller projects: Eligible schools can obtain unsecured loans of up to ₹40 lakh without putting up collateral.
- Secured financing for larger projects: Secured loans of up to ₹10 crore are available, with repayment tenures of up to 12 years.
- Multiple collateral options: A range of collateral options is available for secured school loans.
- Flexible EMI options: Repayment can be structured to suit your school’s cash flow and repayment capacity.
- Fast processing: Loans are processed within 5–7 working days after the required documents are submitted.
- Dedicated Relationship Manager: A Relationship Manager assists you through the financing process, from application to disbursement.
To conclude, Varthana, with its combination of education-focused expertise, wide-ranging financing options, collateral-free and secured loans, cash-flow-aligned EMIs and dedicated support, is an attractive choice among NBFCs and banks for school owners seeking infrastructure expansion.
Get in touch to explore your financing options with Varthana today.
FAQs
Q1: Is NBFC better than bank?
Ans: Neither an NBFC nor a bank can be universally termed “better”. You could carry out a NBFC vs bank school infrastructure loan comparison to see which is more favorable to you. NBFCs are better for speed and flexible rules, while traditional banks are better for slightly lower costs and multiple credit facilities.
Q2: What should I compare before choosing a bank or NBFC for school financing?
Ans: Compare the lender’s eligibility criteria, loan amount, interest rate, processing and other charges, collateral requirements, repayment tenure, EMI structure, processing time and flexibility. Also consider whether the lender understands school operations and is willing to accommodate your financing requirements.
Q3: What should I do if a bank rejects my school infrastructure loan application?
Ans: If your bank loan application is rejected, review the reason for the decision and address any eligibility, documentation or collateral issues. You can also explore NBFC financing, as eligibility criteria and assessment methods differ between lenders.
Q4: Can I apply for a school loan if I have a low credit score?
Ans: Yes, you can apply for a school infrastructure loan at Varthana even if you have a low credit score. However, final approval will depend on our specific criteria and policies.
Q5: Can I get an unsecured loan for school?
Ans: Yes, you can get an unsecured school infrastructure loan at Varthana. We have collateral-free financing of up to ₹40 lakh for eligible borrowers.
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