Loans for Childcare Businesses: Daycare Loans and Grants

Share This

Starting and owning your own business can be a costly and time-consuming process. Licensing fees, real estate costs, and ad spending can often slow a business’s growth before it’s even off of the ground. There are, however, a few industries that are particularly well-suited for entrepreneurs hoping to launch their own ventures at a low cost and high potential for reward. 

One of the best examples of an accessible, easy-to-break-into field of work for new business owners is the childcare service industry. Whether you’re a parent, educator, camp counselor, or childhood development specialist, you may very well be able to translate your experience into a profitable business model. Childcare businesses can often be run from the home, and require little more than the trust of your community and a strong vision to get up and running. And for the costs of launching a business, many loans and financing options are available to help ease the burden on your wallet.

Types of Daycare Loans

While there are few childcare-specific financing options available on the market, there are a number of small business lending options that might help your business cover costs from purchasing play equipment to hiring additional staff to lasting through the offseason. Here are some of the most often used lending and financing options available to new business owners in the childcare service industry. 

Equipment Financing

Any attractive daycare business must be able to, well, attract parents and children to their doors. Playground equipment, kid-friendly technology, and child-safe furniture are oftentimes purchased by new daycare owners in order to outfit their space for the task of caring for children. While these things can be pricey, and while these costs often increase with the size of your operation, a great opportunity for saving exists in equipment financing for small businesses. 

Equipment financing allows small business owners to receive loans in the form of physical equipment or machinery. Rather than apply for a cash loan from a bank, which often requires a down payment of some form of collateral in order to “secure” the deal, you are able to receive the equipment upfront and pay off its cost over time, as you make use of the purchase. Likewise, the equipment itself acts as the security for the loan; this means that you stand to lose the equipment if you default, though it also means that equipment financing is an easier option for those without a proven credit or business history or with inconsistent revenues from month-to-month. Learn more about equipment financing, and whether it might be a good option for your business. 

SBA Loans

Another great lending option for childcare providers can be found with SBA-backed loans. The US Small Business Administration (SBA), provides pre- or partially-secured loans to small businesses across the country with the help of smaller banks and creditors. Typically, SBA-backed loans come with longer repayment schedules and favorably low interest rates. These facts make SBA lending an ideal option for childcare providers that receive payments on a staggered schedule, are unable to provide upfront capital for securing a loan, or otherwise struggle to meet the repayment requirements of standard bank loans. 

It’s important to note that SBA loans are highly sought after, and therefore come with lower approval rates and longer periods before funding compared to less-mainstream options. Be prepared for a lengthy application process when applying for an SBA loan, but be confident that a well-used loan from the agency could come with major upsides for your childcare business. 

Working Capital Loan

Perhaps the most flexible financing option for small businesses is a working capital loan from a bank or alternative lender. Working capital loans are targeted at any and all day-to-day business needs, from paying your support staff to getting snacks for the kids. These advances come as term-loans, meaning that there’s a consistent repayment schedule and rate, and that those figures don’t shift even as your revenues fluctuate. 

A huge benefit of working capital financing, however, is the flexibility with which you can use the funding. If your business only booms during the summer months, a working capital loan could help you subsist in the interim; if you’re in need of new baby monitors, then you could provide for some with a working capital loan. If your business is off the ground with a sure ability to meet monthly repayment terms, then a working capital loan may be the key to keeping your business on healthy ground for the foreseeable future. 

Business Line of Credit

Another flexible option for financing your Daycare business’s day-to-day expenses is through a business line of credit, opened with a bank or alternative lending institution. A business line of credit allows you to withdraw funds as-needed from an account held with your creditor; up to the maximum withdrawal threshold set by the institution, any money you take from the account is yours to spend on whatever near-term expenses you may face. When the monthly repayment period arrives, you are only liable for the money you’ve withdrawn and spent (plus interest). A great benefit of a business line of credit is that you are only charged for what you use, and the possibilities for the funding are more or less endless. If you’re unsure of what your finances will look like in the coming months, or if you deal with a variety of short-term purchases and expenses on a daily basis, a flexible-use financing option like a business line of credit may be a great fit for your business. 

Business Credit Card

A business credit card shares many similarities with a line of credit, in that a business card frees up your company to use funds for short-term expenses at varying levels, and only requires repayment and interest payment on the funding you actually use. A business credit card may be a favorable option for new daycare owners or business owners with limited business history, as they are typically fairly easy to qualify for compared to other small business lending options. Importantly, business credit cards can come with steep interest rates that you should take into account before deciding on this route for your business.

Daycare Grants

In addition to traditional small business lending options, there exist a number of government and private-sector grants available to childcare providers and daycare services in particular. 

Government Child Care Grants

One of the main sources of grant funding for small businesses is the United States government, which offers dozens of no-strings-attached financing packages for qualifying businesses each year.

For example, the Department of Health and Human Services allocates a significant budget each year for the support and welfare of children across the country. These initial funds are passed down through state and local agencies for distribution, with many grants going to individual parents and households, and a smaller percentage being set aside for grant funding for small businesses which target childhood development and welfare in their mission. Check with your local branch of the SBA for more information on if there are any DHHS grant opportunities available for your business. 

On a more general level, the government sponsors dozens of grants each year for women-owned businesses, minority-owned businesses, and businesses which target a specific cause such as providing low-cost child care to families in need. If your daycare business falls under any of these categories, it would be well worth your time to look into the grant options available to you. 

Grants for Nonprofits

If your daycare center operates as a nonprofit, is serving underserved communities, or specializing in child care for disabled or disadvantaged children, you may be able to qualify for any number of grants intended for nonprofits and charitable organizations. For more information on which grants may be available to your business, contact local nonprofits or your regional branch of the SBA. 

Uses for Daycare Loans

The financial needs of your daycare business can range from smaller day-to-day business expenses to big-picture investments for the growth or longevity of your business. At any given moment, your business might face an opportunity for expansion or an injection of emergency funding. The good news is that many of the lending options outlined above are available for and targeted at small businesses with flexible and changing needs, and that every business loan comes with different perks based on your specific needs. 

Small business loans and financing can allow you to meet the challenges of the moment as they arise. If your daycare center is currently expanding, and if you need to hire more staff in order to preserve a positive adult-to-child ratio, a small business loan can help cover those costs and ultimately bring in more revenue to your business. If your recreational equipment like toys and art supplies are experiencing wear and tear at the hands of the kids, an equipment financing agreement or working capital loan could allow you to improve the quality of your gear. And if your daycare has expanded beyond the capacities of your home or original space, a small business loan could go so far as to help provide for commercial rent or mortgage payments. 

No matter the needs of your business, whether you’re looking to open a home daycare center or a larger commercial space, whether you work alone or with support from staff, a small business loan can help get your childcare business to where it needs to be. Learn more about how small business lending can help support your business and the children it serves.