A school that needs a new wing, a college adding a hostel, an institute replacing its bus fleet: the funding question looks like any other term loan, but the borrower usually isn't. In Maharashtra most private schools and colleges are run by a public charitable trust or a registered society, and lending to one comes with legal steps that a company or proprietorship doesn't face.
This guide explains those steps, what lenders look at, and the tax points trustees often ask about. It is general information, not legal or tax advice. Check the specifics with your advocate and chartered accountant.
Why are most schools and colleges run by trusts or societies?
Education in India has long been treated as a not-for-profit activity, and state rules on who can open a school reflect that. Maharashtra's self-financed schools law allows registered trusts, societies and local authorities to set up schools. A 2017 amendment opened this to Section 8 companies as well: companies with charitable objects that can't pay dividends to members.
Two features of Maharashtra law matter for lenders:
- Societies are treated as public trusts. The Maharashtra Public Trusts Act defines "public trust" to include a society registered under the Societies Registration Act, 1860 for a religious or charitable purpose. A charitable society running a school is therefore also registered with the Charity Commissioner and bound by the same rules on property and borrowing.
- Section 8 companies sit under company law. They borrow on the authority of their board and, where required, shareholder approvals under the Companies Act, 2013. Lenders will check those approvals in place of the Charity Commissioner's sanction. Confirm your institution's position with counsel.
Can a trust take a loan in Maharashtra?
Yes, but not on the trustees' say-so alone.
1. The trust deed must allow it. Lenders read the deed (or the society's memorandum and rules) for an express power to borrow and to mortgage property, and for any limits or approval steps it sets.
2. Trustees must resolve to borrow. A resolution of the board of trustees or governing body approves the loan, the security and the authorised signatories. Lenders check that those signing are validly in office. Under Section 22, trustees must report changes, such as a new or retiring trustee, to the Charity Commissioner's office within 90 days, so the lender will compare the resolution with the trust's registered record.
3. The Charity Commissioner must sanction the borrowing. Section 36A(3) of the Act says no trustee may borrow money "whether by way of mortgage or otherwise" for the trust without the Charity Commissioner's previous sanction, subject to any conditions the Commissioner imposes. Two later additions help:
- Where a bank or financial institution has provisionally sanctioned the loan, the Charity Commissioner or Joint Charity Commissioner should decide the application "forthwith and preferably within a period of fifteen days".
- In exceptional situations where the lack of prior sanction causes hardship, the Commissioner can grant ex-post-facto sanction for borrowing from a nationalised or scheduled bank. Don't plan around this. Lenders will normally want the sanction before disbursement.
In practice the sequence is usually: lender's in-principle sanction, then the application to the Charity Commissioner's office with the lender's letter and the trustees' resolution, then the sanction order (often with conditions), and then documentation and disbursement. Fifteen days is the law's stated preference, not a guarantee, so build some buffer into your construction timeline.
Sale, exchange and long leases need sanction too
Section 36 separately says no sale, exchange or gift of a public trust's immovable property is valid without the Charity Commissioner's previous sanction. The same applies to a lease longer than ten years for agricultural land or three years for non-agricultural land or a building. The 2017 amendments allowed ex-post-facto sanction for transfers in exceptional cases and capped leases the Commissioner can approve at 30 years. This matters if a lender ever has to enforce its security, and if your plan involves leasing part of the campus to raise money.
Watch the 2025 trustee-tenure changes
A September 2025 ordinance amending the Act added the concepts of tenure trustees and perpetual trustees. When a tenure trustee's term ends, that trustee stops functioning until reappointed. Where the trust deed is silent, perpetual trustees are generally limited to a quarter of the board. Check the current text with your advocate, because ordinances are later replaced by legislation. For borrowers, the practical point is simple: make sure every trustee signing the loan resolution is validly in office under the deed and the amended Act.
What if the school is on leasehold land?
Many campuses in Navi Mumbai, the MIDC areas and elsewhere stand on land leased from CIDCO, MIDC or the government, not owned outright. Lease deeds usually restrict mortgaging or transferring the lessee's rights without the lessor's consent. Lenders will therefore normally ask for the lessor's no-objection or permission to mortgage before accepting the property as security. Some lessors also want a tripartite agreement and a transfer or permission fee.
In May 2025 the Bombay High Court, in a case between MIDC and Union Bank of India, held that a mortgage made in breach of a lease covenant was not automatically void where the lessor hadn't used its remedy of termination. Lawyers still read the ruling as a reason for lenders to get the lessor's consent first, not to skip it. Also check the lease's permitted use (education), the remaining tenure and whether lease rent is paid up.
What do lenders assess for an education loan to a trust?
| Area | What lenders typically look at |
|---|---|
| Enrolment | Student strength by class or course over recent years, intake versus sanctioned capacity, waiting lists, competition nearby |
| Fee income | Fee receipts reconciled with audited accounts, collection efficiency, outstanding fees, concessions and RTE reimbursements receivable |
| Fee regulation | How much fees can rise, and on whose approval (see below) |
| Recognition and approvals | School recognition and board affiliation; for colleges, university affiliation and regulator approvals (for example AICTE for technical courses) |
| Trust compliance | Registration, audited accounts filed with the Charity Commissioner, change reports, income-tax registration |
| Management | Track record of the trustees and the institution, governance, related-party dealings |
| Security | Land and building (owned or leasehold), hypothecation of buses and equipment, and often an escrow of fee collections |
How fee regulation affects your repayment capacity
Lenders model repayment from fees, so they look closely at how fees are set.
- Schools. Under the Maharashtra Educational Institutions (Regulation of Fee) Act, 2011, private school managements must put fee increases to the executive committee of the parent-teacher association ahead of the new academic year. Disputes can go to a Divisional Fee Regulatory Committee, whose decision binds the management for two academic years. A projection that assumes steep annual fee hikes is likely to be questioned.
- Professional colleges. For unaided professional institutions such as engineering, medical, pharmacy and management colleges, fees are approved by the Fees Regulating Authority under a 2015 Act. Among the factors it must consider are the cost of land and building and a reasonable revenue surplus for growth and development, capped at 15% of educational revenue in the course. Loan servicing has to fit inside that structure.
Escrow of fee collections
For larger loans, lenders often ask that fees be collected into a designated or escrow account with the lending bank, with the instalment set aside before the rest is released for operations. Many institutions now collect fees online, which makes this easier to set up.
What can the loan be used for?
Common purposes include:
- Term loans for new buildings, extensions, hostels, labs, libraries and sports facilities, usually repaid over several years with a moratorium during construction.
- Vehicle loans for school and college buses, secured by the vehicles.
- Equipment loans for computers, smart classrooms, lab and hospital equipment (for medical colleges).
- Working capital (overdraft or cash credit) to cover the months between salary payouts and fee collection.
- Takeover or refinance of existing high-cost debt.
As one public-sector example, Bank of Baroda's Baroda Vidyasthali scheme for educational institutions offers term loans from ₹25 lakh up to ₹15 crore (₹25 crore in some metros, including Mumbai). It also offers overdrafts capped at the lower of a fixed amount or 60% of expected total fee collection, and land funding limited to 20% of project cost. Terms vary by bank and change over time, so treat any scheme page as a starting point. For a broader comparison of lender types, see our guide on banks, NBFCs and financial institutions for project funding.
Tax points trustees ask about
General information only. Take advice from your chartered accountant.
- Registration has been renumbered. From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act. Registration of charitable trusts and institutions, earlier under sections 12A/12AA/12AB, now falls under Section 332, in a part of the new Act on "registered non-profit organisations". Registrations granted under the old law continue to be recognised.
- Spending borrowed money isn't application, but repaying it can be. Under Section 341 of the 2025 Act, the amount repaid in a year towards a loan or borrowing counts as application of income if the repayment is made within five years from the end of the tax year in which the borrowed money was spent, and that spending happened after 31 March 2021. This carries forward the position under the 1961 Act. Plan your repayment schedule with this in mind.
Common reasons education loans get delayed
- A trust deed with no clear borrowing or mortgage power, or one that needs amending first.
- Pending change reports, so the trustees on record don't match those signing.
- No lessor NOC for leasehold land, or a lease close to expiry.
- Projections that assume fee increases the fee rules won't allow.
- Accounts not filed with the Charity Commissioner or the tax department on time.
Our article on why loan applications get rejected covers more general red flags.
How Biz Corp Solutions helps
We work with schools, colleges and the trusts and societies behind them to work out the right structure for a building, bus, equipment or working-capital need. We prepare the lender file, coordinate the documents the lender and the Charity Commissioner's office will ask for, and approach suitable banks, NBFCs and financial institutions, keeping you updated at every stage. The lender makes the final decision on sanction and terms. Explore our education funding and loan against property services.