Bank Loans for Schools – Similar Yet Different

The Similarities

Just like businesses, schools often need financial support to cover essential expenses such as staff salaries, building maintenance, and educational costs for students. With increasing regulatory pressure in recent years, coupled with the impacts of the COVID-19 pandemic, having access to emergency funds has become crucial for schools. That’s where loans come in.

The Differences

However, when schools approach conventional lenders for loans, they are often treated like any other business. This approach doesn’t work. Here’s why:

1. Schools do not have a legal identity of their own; loans are always taken out in the name of the parent organization (either a society or a trust).

2. Schools do not have a PAN (Permanent Account Number). Requesting one opens the door to complications like future tax notices and penalties.

3. Standard models used to assess credit risk and financial ratios don’t apply here. School incomes are regulated, and their finances typically operate on a no-profit-no-loss basis, which means traditional financial health ratios aren’t relevant.

4. Cash flow projections for schools don’t follow a predictable pattern. Regulations, government restrictions, and the specific realities of the education sector must all be accounted for in financial forecasting.

Stuck in a similar situation as a banker trying to approve a school loan or as a school owner seeking one? Reach out to us – we’re here to help.