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Business loans for child care centres

Caring for the next generation: Everything you need to know about financing a child care centre.

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By

Kellye Guinan

&

Emma Balmforth

Updated

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Name Product Interest Rate Loan Amount Loan Term Minimum Revenue Minimum Time in Business Loans Offered
OnDeck Business Loan
OnDeck Business Loan
8.00% – 29.00%
$5,000 - $300,000
6 - 18 months
$100,000/year
6+ months
Secured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months with a minimum annual gross revenue of $100,000.

OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.
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Merchant Growth Business Loan
Merchant Growth Business Loan
12.99% - 39.99%
$5,000 - $500,000
3 - 12 months
$10,000 /month
6 months
Unsecured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months and have a minimum of $10,000 in monthly sales.

Merchant Growth offers financing tailored to business needs. It specializes in providing capital based on future cash flows, but it also offers fixed solutions. Fill out an application within 5 minutes and get your funds within 24 hours.
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Loans Canada Business Loan
Loans Canada Business Loan
6.60% - 29.00%
$4,000 - $500,000
3 - 60 months
over $10,000/month
100 days
Unsecured Term
To be eligible, you must have been in business for at least 100 days, have a Canadian business bank account and show a minimum of $10,000 in monthly deposits ($120,000/year).

Loans Canada connects Canadian small business owners to lenders offering financing up to $500,000. Complete one simple online application and get matched with your loan options.
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Child care centres are projected to keep growing over the next few years. Because of this, they’re a solid option for people looking to become small business owners. Lenders are likely to view this investment favourably, meaning you may find it easier to get a loan and purchase your very own child care centre. Our guide covers the expenses to consider and where to look to find funding for your business venture.

How can I finance the purchase of a child care centre?

Outside financing will likely be necessary whether you’re starting your child care business from scratch or purchasing an existing business. Here are three top options to consider:

  • Canada Small Business Financing Program (CSBFP) Loan. You can apply for these loans through a chartered bank, credit union or a caisse populaire. They are at least 75% backed by the Government of Canada. Your business must make under $10 million in revenue annually to be eligible for this program. There are some restrictions through this program, so you’ll want to make sure your child care business is eligible before lodging an application. If you’re ineligible for the program, consider a general small business loan offered by an online lender.
  • Term loan. A term loan can cover just about anything — from purchasing your facility, renovating your home for a home daycare or buying toys and furniture. These come from a variety of lenders and have a slew of unique features, so compare your options carefully. You can usually borrow amounts up to $1.25 million, which can help cover the costs of renovations, supplies and more.
  • Seller financing. Rather than financing a child care centre upfront, you could negotiate with an existing child care centre seller to pay them back over a set period of time. However, many sellers will likely prefer a lump sum payment at the time of sale.
  • Business line of credit. A business line of credit is a suitable option for flexible financing, and can be especially useful if you’re looking to cover operating costs for an existing child care centre. With a line of credit, you can draw up to your approved credit limit as needed and repay the amount back over an extended period of time.
  • Secured loans. For one-time large purchases of things like new furniture and toys, you may want to consider a secured loan. Since you’ll need to use your equipment as collateral, you can lose it should you default on your repayments.

Representative example: Merve needs to train staff

Merve has owned her childcare centre for five years now and has decided to switch to a more advanced and hands-on educational program. While she’s purchased the program itself, as well as the necessary books and supplies, she still needs to train her four staff members. Training will take place over the course of six months and will be done online three days a week for two hours after work. This means Merve will not only need to pay for the training for each staff member, but she will also need to pay her staff for six more hours of work a week for a total of six months. She has already budgeted wages into her costs, but isn’t able to outright pay for the training course for each staff member – which costs $5,500.00 each.

Merve needs a loan for $22,000.00 to train her four staff members. She heads online to compare small business loan lenders and is able to get approved for a $22,000.00 loan with a competitive APR and a long loan term of 3 years. She knows this business move will pay off and attract more customers, which will help her better manage her costs.

Cost of training for four staff members$22,000.00
Loan typeTerm loan
Loan amount$22,000
Interest rate (APR)8.00%
Loan term3 years
Additional feesOrigination fee of 3.00% ($660.00)
Monthly payment$689.40
Total loan cost$25,478.40

*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.

How do lenders evaluate child care businesses?

A lender will likely determine the value of an existing child care business by calculating its capitalization, or cap rate. This is similar to how most commercial properties are valued. The cap rate considers the centre’s return on investment (ROI) by looking at a two-year average of its net operating income (NOR). The cap rate also takes into account recent sales of similar child care centres in the local area.

The difference between a child care centre and a daycare centre

These are generally regional terms, but ‘child care’ is a more inclusive term of different types of centres. It’s more commonly used by care professionals. This is because not all child care occurs during the day, and ‘daycare’ tends to imply more informal care. Daycares also tend to be home businesses more often, while child care centres are usually located in commercial buildings.

Because of the educational services many providers are giving clients, the term ‘child care’ encompasses a broader set of skills and facilities.

Business loan preparation checklist

Before you apply, consider the financial health of the business. The aim is to separate any emotional motivations you may have from objective financial and business considerations. After all, if a lender is likely to think that the purchase is a poor one, there’s a good possibility the lender’s right.

  • Provincial licensing. Child care is a heavily regulated industry, and for good reason — parents don’t want to send their children to places that put them at risk. Obtaining the right licensing for your child care centre is critical when starting your business.
  • Educational program. Are you planning on providing education services to the children you’re caring for? If so, you’ll need to invest in an education program that caters to a specific age group.
  • Insurance. All businesses require insurance. You’ll need liability, business and property insurance, as well as any others that you’re required to have.
  • Startup costs. You should have enough money set aside to cover the first three months of your business expenses. This includes paying your staff, buying supplies, marketing materials, licensing fees, rent and insurance. Having this money set aside helps you avoid going broke before your business can get off the ground and make some revenue.
  • Child care facility. Invest in a space large enough to fit the number of children you want to take on. Whether you’re starting fresh or buying a business that’s already running, you’ll want to make sure you have enough room to grow as you add more clients to your roster.
  • Employee wages. While you should be compensating your employees appropriately for their labour, it’s important to not dedicate too much of your income to salaries. Try to keep your employee wages around 60% of your total income.
  • Qualifications and experience. A child care centre operator should have at least three years’ experience running child care facilities. They should also be appropriately licensed and have gone through a background check.
  • Location. The child care centre should be located in a family-friendly area – but not too close to a competitor.
  • Solid financial history. If you’re buying a business that’s already running, make sure you have access to at least two years of complete business financials, including profit and loss statements. This allows you to objectively consider the profitability of the child care centre.

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What should I consider before purchasing an existing child care centre?

  • Reason for sale. Some owners initiate a sale because their business is failing financially. Have an accountant or similar professional look over the current owner’s financial statements carefully before plunging into a sales agreement. Be wary of sellers who won’t divulge the financials or who give excuses about why the financial statements are so poor.
  • Staff turnover. Frequent staff turnover can indicate an unpleasant working environment. When you decide on purchasing a child care centre, be sure to examine the management currently in place and how the employees are compensated for their work.
  • Staff experience and training. Child care centre staff should, at a minimum, be certified caretakers. If you want to run an educational program, the employees should be ECE’s and trained in teaching preschool-aged children.
  • Safety. Safety is a paramount concern in child care centres, perhaps more so than any other business. Consider safety standards for fencing, door locks, window locks and fire evacuation processes. If the centre you’re thinking of purchasing isn’t up to date, it may be a good way to negotiate a lower price.

Common business expenses of running a child care centre

Buying your business is only the first step to success. Once you take over, you’re responsible for all the administrative tasks, financial obligations and purchase of supplies.

  • Marketing expenses. You’ll need to pay to get the word out. Budget for a website, business cards, flyers and other marketing materials.
  • Staff salaries. Your employees will need to be paid before you can make a profit. To attract well-qualified individuals, make your employment package as competitive as possible. Consider lowering your initial take home pay to fund benefits or additional training.
  • Rent. Unless you purchase your building outright, you’ll need to pay rent on your space.
  • Insurance. Monthly insurance costs, as well as possible legal fees, should be a good portion of your budget.
  • Office supplies. Printers, computers and accounting software are just some of the necessary components of running a child care centre.
  • Activity supplies. Beyond educational programs, you’ll also want supplies for activities. You’ll need plenty of crayons, paper and toys to keep the children amused.

Bottom line

Purchasing an existing child care centre may be complex with licensing and safety concerns, but it can result in a stable business model that could earn you steady profits over time. If you care about children and want to see preschool-aged kids succeed, running a child care or daycare centre may be the right business opportunity for you.

Interested in learning more about the different financing options available? Browse through our business loans guide for more information.

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