How To Start A Business While Paying Off A Student Loan?
Ashok Kedia, a printing press owner in Jamshedpur, set up his business in 2004. He was fresh out of college and was just 24 years. To fund his education, Ashok had taken a student loan from a bank. He had a debt burden of Rs.5 lakh.
Despite the debt, Ashok craved for a business of his own. Thus, during the final year of his management, Ashok looked beyond campus placements. Easier said than done! Financing was becoming a huge problem for Ashok. Also, most lenders rejected small business loans for his young business. Yet, Ashok kept his dream alive.
Are you also just out of college and toying with the idea of starting your own venture? Here are a few tips that can come in handy:
Do Your Math
Plan meticulously when you are setting out to get a new business loan. Start by making an estimate of your expenses for the next 12 months. List the expenses under different heads. For example, you could have payroll expenses. You may have to spend on inventory or storage. You may even need to get the requisite licences for the new business. At the same time, ensure that your expenses are minimal during the early phase. Predict your monthly income as well. Try to narrow down the range of these predictions. Subtract your monthly expenses from your income. This amount should exceed your equated monthly instalment (EMI) by at least 10%.
Be wary of the fact that there may still be expenses that you have not budgeted for. If you opt for a loan, keep a tab on the EMIs of your education loan and the new business loan you are applying for. For example, say the education loan EMI is Rs.5,000 and the business loan EMI is Rs.6,000. Then you have to set aside Rs.11,000 every month. Also, you need to ensure that you earn at least Rs.25,000.
Also Read : Tips To Ensure You Find The Best Business Loan
Consolidate Your Education Loan
Having to pay off an education loan is an added responsibility. The responsibility multiplies if you are planning a business venture.
One way out is to refinance the loan. You could look for a lender that offers lower interest rates. However, if you intend to start a business, it is better if you consolidate the education loan. This means you take a fresh loan to pay off your existing education loan and start your business. It is advisable that you opt for a secured loan. You can mortgage a property as collateral for the new loan. Besides, there are several other benefits like longer repayment tenure and tax savings. The new loan may allow you to repay with lower or same EMIs due to reduced interest rates. Thus, you get the extra cash for the business, while reducing your financial burden.
Improve Your Loan Eligibility
Before approaching a lender, get your CIBIL score. This will give you an idea about your chances of getting loan sanctioned. Any score above 750 means you are credit worthy. You could start by regular and timely repayments of your credit card dues. Ensure that you do not default on EMIs. This will enhance your score.
Another way to deal with it is to look for partners for your business. This way you can hedge risks. Besides, the chances of getting the loan will increase.
Strategize Your Repayment Structure
One good thing about an education loan is that it comes with a moratorium period. Thus, you start paying EMIs one year after completing your studies or six months after getting a job. The earlier date would apply. Prepare a corpus during this moratorium period. This way, you will lower your interest burden. You could also talk to the lender to get an interest reduction on partial repayment. You could also look at transferring your loan to one that offers a lower interest rate.
You should not be wary of taking a loan to fulfil your dream as long as you do not default. Plan your business and your education loan. To help you start your own business, you could consolidate your education loan. You could also apply for a business loan to start your business.