Are you planning to expand your childcare business? If so, you may be wondering how to finance your venture.
Several loan options are available to small businesses, each with its own set of pros and cons. How do you know which one is right for you?
In this article, we’ll explore the different types of daycare business loans available to small businesses, as well as the key factors you should consider when choosing a loan for your child care business. By the end of this post, you’ll have a better understanding of which loan option is best for your needs. So let’s get started!
How Daycare Financing Can Help Your Business
The daycare industry’s market size, measured by revenue, is expected to be $54.9 billion in 2022. As countries are lifting restrictions and businesses are opening up, many families are looking for high-quality child care.
If you want to expand your daycare business, there are some reasons why getting additional financing can help you achieve your goals, including:
- To purchase new equipment or furniture
- To renovate your daycare facility
- To hire new staff
- To cover operating costs
- To expand your business
Whatever your reason for needing daycare business financing, it’s essential to choose the correct loan option for your needs. Read on to find more about daycare loans available in the market.
Best Financing Options for Child Care Businesses
Whether your daycare business is for-profit or non-profit, several financing options are available for you. Here are some of the most common loan options:
1.Business Line of Credit
A line of credit is a type of loan that allows you to borrow up to a certain amount as needed. It’s a flexible loan where you pay interest only on the borrowed amount.
An established daycare business owner has healthy revenues and good credit. A line of credit may be the perfect solution for when unexpected expenses arise or revenues fall short. When considering a line of credit for your daycare business, be sure to research different lenders’ interest rates and terms.
The downside of a line of credit is that you may be charged interest on the total amount you borrow, even if you only use a portion of it.
That’s why you should ensure you only borrow what you need and pay back the loan as soon as possible.
2. Term Loans
A term loan can be a helpful option for daycare businesses that need financing for specific projects, such as purchasing new playground equipment. If you need to finance expansion plans, a term loan may be an option for predictable payments.
You’ll likely have to show at least one year of business experience and good credit with solid revenue streams before applying. Still, if all these qualifications are met, the benefits far outweigh any drawbacks!
3. SBA Loans
The Small Business Administration (SBA) loans come with low rates and affordable repayment terms. The U.S government guarantees these small business loans, so you will have to go to a lender, not the SBA, to apply for one.
There is an extensive list of SBA loans available – but keep in mind that generally, they are not available for non-profits unless it’s during disasters. Exceptions were made during the Coronavirus pandemic with EIDL and PPL loans, which are no longer valid as of January 1, 2022.
Within the SBA, there are several loan options to consider:
SBA7(a) Loans
Sba7(a) loans are low-interest loans that can be used for working capital or even refinancing certain debts with an interest rate of 0%. The repayment period on these types of debt usually lasts 10–25 years, so you will have plenty of time to pay back your new investment after it’s completed.
There are also other loans under the 7(a) program umbrella that go up to $350,000; specifically, 7(a) Small Loans and 7(a) Express loans.
SBA 504 Loan Program
These loans are typically used to acquire or expand the real estate, including the daycare business looking for a new building and acquiring playground equipment.
The loan includes:
-
50% of funding from third-party lenders.
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40%, coming directly from CDCs (Community Development Corporation) who work with communities across America.
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10% borrower contribution
SBA Microloans
Microloans are small loans of up to $50,000 that nonprofit Community Development Financial Institutions can access. The average amount is closer to $14K, making it suitable for home-based daycare businesses.
Lenders who provide these loans may accept less than perfect credit or lend to younger businesses.
4. Commercial Real Estate Loans
If your child care business wants to acquire or renovate a property, you may need a commercial real estate loan. The terms of these loans will vary significantly by lender.
These loans generally offer significant loans amounts and typically have stricter burrowing qualifications.
5. Business Credit Cards
Another option for small businesses is a business credit card. Like a line of credit, you will pay interest on the amount you borrow. This type of card can be used to finance short-term expenditures, such as inventory or marketing costs. You can also receive rewards, such as cash back or points, for spending on the card.
Business credit cards come with high-interest rates. So if you’re not able to pay off your balance in full each month, you may end up paying more in interest than you earned in rewards.
Remember to choose this type of financing option for short-term costs, not long-term ones.
How to Qualify for a Day Care Loan
When you’re looking for a daycare business loan, the lender will want to know that your business is viable and has the potential to succeed.
There are a few things you can do to make your business more attractive to lenders:
Have a Business Plan
Your business plan is one of the most essential documents you’ll need when applying for a loan. It outlines your business goals, strategies, and how you plan to achieve them.
A well-written business plan will show lenders that you’re serious about your daycare business and that you have a solid plan for success.
Build Your Business Credit Score
Your business credit score is a measure of how creditworthy your business is. A high business credit score indicates that you’re a low-risk borrower and that you’re likely to repay your loan on time.
You can improve your business credit score by paying your bills on time, using a business credit card, and borrowing money from a reputable lender.
Show Your Financial History
The lender will want to see your financial history when you apply for a loan. They’ll want to know how you’ve handled loans in the past and whether you’re able to repay the loan you’re applying for.
To show lenders that you’re a responsible borrower, be sure to keep accurate records of your income and expenses. You can also provide tax returns, bank statements, and other financial documents that show your business is in good standing.
Get the Right Financing for Your Child Care Business
Daycare business owners who want to lift their business off the ground must seek out the correct type of financing that suits their needs. With so many financing options available, it can be challenging to determine which one is best for your child care business. That’s why we encourage you to talk with our lenders and find the loan that meets your specific needs and goals. We want to see your daycare business succeed, and we believe that a suitable loan from us will help make that happen!
