Editor's choice: First Down Funding business loans
- No prepayment penalties
- Competitive rates
- Works with bad credit and most industries
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Despite many people turning to a work-from-home lifestyle, child care is still often a necessity. And managing a safe childcare center that can meet well-being and educational needs of children often requires funding to start out or expand.
Outside financing will likely be necessary if you’re starting your business from scratch, purchasing a childcare center or expanding your existing business. Here are four top options to consider:
The Small Business Association (SBA) has loan options available for people who meet its strict eligibility criteria. In exchange, up to 85% of your loan is backed by the government, lowering your interest rate significantly.
But your childcare business needs to have exhausted funding options before applying for an SBA loan. This is a good choice especially for business owners who may not have the best credit history but are looking to expand to a new location or cover construction costs.
A term loan can cover just about anything — from purchasing your facility to buying toys and furniture. These come from a variety of lenders and have a slew of unique features, so compare your options carefully.
For one-time large purchases of things like new furniture, you may want to consider an equipment loan that’s secured by collateral.
Rather than financing a childcare center upfront, you could negotiate with the 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.
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. This allows for flexibility that you can take advantage of to make several smaller purchases or fund an ongoing project, like updating a playroom.
To get started on your business loan comparison journey, select the loan amount you need, your revenue for the past 12 months, time in business and personal credit score. Then hit Show loans to get personalized recommendations for your business.
A lender determines the value of an existing childcare business by calculating its capitalization, or cap rate. This is similar to how most commercial properties are valued.
The cap rate considers the center’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 childcare centers in the local area.
These are generally regional terms, but ‘child care’ is a more inclusive term of different types of centers. 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.
Because of the educational services many providers are giving clients, the term ‘child care’ encompasses a broader set of skills and facilities.
Before you apply for a loan, consider the following.
If after considering these factors, the purchase seems like a poor decision, you may want to look into a franchise opportunity instead. While it can be costly upfront, you may be able to take advantage of a well-known name to establish a childcare business that has immediate trust in the community.
Buying or opening your business is only the first step to success. Once you get it up and running, you’re responsible for all the administrative tasks, financial obligations and purchase of supplies.
If you care about children and want to see preschool-age kids succeed, running a childcare center may be the right business opportunity for you. Just make sure to get the funding necessary to run it successfully.
Interested in learning more about the different financing options available? Browse through our business loans guide for more info.
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