Tuesday, June 26, 2007

London Business School HSBC loan

The second most important thing in pre-MBA is finding money to finance the course. When I first met a number of admits couple of years ago they were all saying: “Don’t worry about money, get in first, and finances will be sorted automatically”. Yes, upon acceptance to Stanford you fill a questionnaire and the bank says: “You will need the following amount of money. Here you are”. But things are not like that in Europe. Loans are harder to get and scholarships are scarce (in LBS this year ~25% of the class got a scholarship – “only” or “whole” depends on what side of the fence you are). Thus you should start thinking about money before you secure the place in the next class.

Disclaimer: I will write everything I know about the HSBC loan scheme so it is no use asking me for additional guidance. This information is true to the best of my knowledge and up-to-date in June 2007. If you have any other questions, you’d better contact the program officials.

  • Maximum amount is £50,000;
  • No co-signer or guaranties required;
  • Repayment starts 6 months after the course completion;
  • No penalties for early repayment.

Myth: Insert-your-country-here nationals have particular difficulties in getting the loan and are often refused.
Truth: Only the nationals of Myanmar cannot benefit from this scheme (this has something to do with the list of money-laundering countries). People from all other countries will have no difficulties in receiving the loan once they apply wisely and provide all the necessary documents.

Drawback #1: How much can you apply for?
Take two thirds of your net income (take the past 12 months figures without bonuses* and divide by 12). This is what HSBC will consider the maximum amount you’ll be able to repay after getting a job post-MBA.
*you’d better clarify if bonuses should be included or not, because I am not sure

Based on current interest rate of 7.75% and repayment period of 84 months (7 years) for two-year MBA program HSBC gives the following figures:
Amount £20,000 - monthly repayments: £371
Amount £30,000 - monthly repayments: £557
Amount £40,000 - monthly repayments: £743
Amount £50,000 - monthly repayments: £928
Don’t ask me how they got those figures. I tried to check, but the method I was taught at university is not working here, so I will probably have to get an MBA to understand this.

Drawback #2: You cannot apply for the maximum amount
I know people whose salary allowed applying for £50,000, who applied for it and were rejected.
Actually in borderline cases the bank takes into account multiple things apart from your current salary: likelihood of getting employment in the UK once graduated and other financial commitments.
If you know a safe maximum amount to apply for – you’re welcome to write it in comments.

Drawback #3: You need to show the bank how you will pay for the rest of your course
For example, you apply for £40,000 and after estimating all costs you need another £40,000 for living. You will have to show the bank that you have secured those £40,000.

What documents you’ll need to apply for the loan:
  • A copy of passport main page (this is for identification purposes. I applied for the loan with one passport and exchanged it after that because it expired – this is fine)
  • Copies of all bank statements for the previous 3 months (take care and do not have any overdraft on your accounts)
  • Evidence of earnings for the previous 12 months (salary slips or tax documents or a letter on original letterhead from your employer)
  • Proof of current residential address
  • Proof of permanent residential address for non-UK residents if different from above
  • Other evidence for any funds you have to put towards the cost of the course
  • Filled application
  • The photocopy of everything above (to use by LBS)

Other useful things:
  • All the documents should be issued in English or officially translated.
  • There is a question in the application whether you own a property or assets and the estimated value of those. Your words will be taken for granted if you won’t use this property\assets towards the cost of the course. Otherwise you will have to provide a recent valuation.
  • It is assumed that you will provide the bank statement from which your salary incomings will be clear or explain why you cannot provide this statement.
  • By the way, I found that explanatory letters work very well. Read your complete application out loud and if there are some questions remaining spend one more piece of paper to address them.
  • If the bank decides you asked for too much – they will reject your application.
  • If you secure the loan for tuition fees you will not be able to use it towards any other purposes (e.g. living expenses).
  • LBS takes the administration fee of 1% of the loan. This fee is only charged if you agree to take the loan (because you may apply, secure the loan and then find other sources and decide not to take the loan – in this case administration fee is not charged).

Success story: I initially gathered the documents for about three months – the time was spent on budget calculation, providing evidence of other funds and official translation of the documents.
I sent the pack to school by courier in the end of April. In two days I got an e-mail with confirmation of delivery and additional question from financial aid officer. After we clarified the question she sent my application to the bank – and in less than a week there was a positive answer.
I suppose that if you apply later, say in August, it may take longer to get the answer, but all in all the decision process is rather fast.