The growing buzzword for many students at Indian Institutes of Management and Indian School of Business (ISB) seems to be “Will have my own venture after a management degree”. Even institutes are promoting entrepreneurship in a big way. For instance, Jamnalal Bajaj Institute of Management Studies has set up a special cell for entrepreneurs. ISB takes proposals from students and evaluates them for viability and financing. In February, it got 100 proposals, of which 30 were selected. However, many find it difficult to opt for entrepreneurship.
Reason: They are already saddled with an education loan. “I opted for placements and pushed back my business plan by three years, as I wanted to pay back the education loan before taking another loan,” said Sharad Kumar, who passed out of ISB. He had taken an education loan of Rs 10 lakh. And a new venture would have needed another Rs 50-80 lakh. In hindsight, Kumar confessed his decision could have been right because many of his friends were finding it difficult to pay back two-three loans. Others, whose plans did not work, were on a job hunt, he added. While an educational loan allows students to get the best degrees, it also plays a restrictive role in starting their own ventures. For those bitten by the entrepreneurship bug, here's some help.
Banker's belief: Approach the bank, which has already given the education loan, with your business plan. If the banker is convinced with the plan, he may allow you to start by only paying the interest amount on the education loan. You will have to pay the interest amount till the time your business breaks even. Once you start earning a surplus, you can pay back in two or three big yearly installments. S Govindan, general manager, Union Bank of India, said, “While there are no standard guidelines for loan restructuring, repayment need not always be by way of equated monthly installments. It can always be rephrased.”
Depending on the terms of negotiations with the bank, you can also repay the loan in a balloon fashion. That is, you start by paying small amounts and move to paying higher amounts gradually. “Ballooning repayment is also allowed, depending on the case,” said Govindan.
There are other ways as well. Some banks might allow you to pay a small fixed sum for the first couple of years and hike EMI for the rest of the period.
Clubbing: While taking business loan from the same bank, you may be given some respite, as your bank can club together both education and business loans. Experts say banks charge a higher rate of interest for clubbing loans.
Guarantor: The role of a guarantor is very important. It can be useful if more loan is being sought or in case of a deferment or restructuring.
As far as bankers go, some feel they provide an education loan with the perspective the student will join some company. As a result, they discourage too much of restructuring. Manju Srivatsa, president (retail), Axis Bank, said, “Education loans are not made for a business person.” Interestingly, the Income Tax Act under Section 80E gives tax relief on education loans for a maximum period of 8 years. But, it does not specify when the tax benefits can be availed. “The year of repayment need not be the first year of loan. You can negotiate with your bank to start paying from, let’s say, the fourth year also,” said Kaushik Mukherjee, executive director, PricewaterhouseCoopers.