Business Financing Options for Childcare Programs: Banks, SBA Loans, and Platform Financing

If you have ever needed to open a classroom, replace a roof, or cover payroll through a slow month, you know the hardest part is the timing. The money goes out before the tuition comes in.

You have five main ways to fund your childcare business: grants, bank loans, SBA-backed loans, community development lenders, and platform financing based on your payment history. They differ in how long they take, what you need to qualify, and what they are best used for. Start with grants, since you do not pay them back. Bank and SBA loans cost the least for big, long-term purchases like a building, but they ask for the most paperwork. Community development lenders often work with programs that banks turn down. Platform financing is the fastest, and it suits everyday business costs rather than buildings.

Here is how each option works, what it is good for, and how to tell which one fits your program.

Why borrowing can be harder than you expect

You can walk into a bank with full classrooms, a waitlist, and years of on-time rent, and still have a tougher conversation than you were expecting. That is not a reflection of how well you run your program. It is the economics of the field.

Child care is expensive to run, margins are narrow, and there is not much a lender can hold as security. That combination can make it harder for childcare owners to borrow, both for daily operations and for building improvements. Your tuition already sits close to what care costs to provide, families cannot absorb big increases, and you cannot trim staff without changing your ratios. That leaves little room in your budget for a loan payment, and a lender will spot it quickly.

Your building can be a sticking point too. A space built as a childcare center is hard to use for anything else without expensive changes, so lenders often lend less against it than they would against a general-purpose commercial building.

None of this means banks will not work with you. Banks and credit unions are often the least expensive place to borrow, so they are worth approaching first. It does mean you should expect more questions, and bring more documentation, than a business in a less specialized field.

Start with what you need the money for

The right choice depends less on your credit score than on what you are buying and when you need it. Four questions will narrow it down quickly.

• What is the money for? Buying a building, renovating a classroom, buying equipment, covering payroll in a slow month, and buying another program are all different needs, and the cheapest option for each one is different. A good rule is to match the length of the financing to how long the thing you are buying will last. Do not finance a building over one year, and do not pay decades of closing costs for something you will use up this fall.
• How soon do you need it? An SBA loan for real estate can take months. A line of credit you opened last year is available this afternoon. If you need money urgently your choices narrow fast, which is the best reason to set up financing before you need it.
• What can your budget handle? Work out what a monthly payment would do to your budget in a slow month, not an average one. Your lender will do this math, so it is better to do it first.
• Have you looked at grants? You do not pay grants back, which makes them the best option for anything they will cover. A lot of owners skip this step because the research takes time, then borrow for something a grant would have paid for. Our guide to daycare grants covers how to find what is offered in your state.

Bank loans and lines of credit

Banks and credit unions are usually the least expensive place to borrow, if you qualify. Four products cover most of what programs need.

• Term loans give you a lump sum that you pay back on a set schedule. These fit a specific project, like a renovation or an expansion.
• Lines of credit let you borrow and repay over and over, up to a limit. This suits the gap between when tuition arrives and when payroll goes out. Open one while your finances look strong rather than when you are short, because that is when you will qualify.
• Equipment financing uses the equipment itself as security, which usually makes it easier to get than a loan of the same size with nothing behind it. Playground structures, kitchen equipment, and vans all count.
• Commercial real estate loans are for buying a building or taking on major construction, with the property as security and terms that run for decades.

What your bank will ask for

Expect to gather two or three years of business tax returns and financial statements, personal tax returns and a personal financial statement for each owner with a significant share, your license and quality rating, your enrollment and attendance history, your current tuition rates, and a personal guarantee. Most banks want at least two years of operating history, which is the most common reason a newer program gets turned down.

Ask about community development lending

Here is something your branch may not bring up on its own. Many banks have a separate community development lending team, because banks have regulatory reasons to lend in communities that are underserved. Early education programs often fit what those teams are looking for. An application that does not make it through a standard business loan review is sometimes approved by that group instead, so it is worth asking directly.

SBA-backed loans

The Small Business Administration does not usually lend money itself. It guarantees part of a loan made by a bank or another approved lender, which lowers that lender's risk and makes them more willing to say yes. For childcare programs, that guarantee is often the difference between an approval and a decline. The SBA runs a resource hub for childcare businesses, and says childcare businesses can apply for any SBA product they qualify for.

Three programs matter most.

• 7(a) loans are the all-purpose option. You can use one for working capital, equipment, refinancing, buying an existing program, or real estate. Terms are long and rates are capped, so they usually cost less than the alternatives. They also ask for the most documentation of anything here.
• 504 loans are for large purchases that last, mainly real estate and major equipment. They work a little differently: a bank loan is combined with a loan from a Certified Development Company, a nonprofit set up to support local business growth, plus a down payment from you. If you are buying or building a facility, this is usually the least expensive long-term option. The SBA explains 504 loans in more detail.
• Microloans are the smallest and the easiest to qualify for. They come from nonprofit community lenders rather than banks, and most pair the loan with free business coaching. Requirements are more flexible than the other two programs, which makes this the practical starting point for home-based programs and newer businesses. See the SBA's microloan program page.

If your program is a nonprofit, start with microloans

SBA rules generally require that a business operate for profit, so nonprofit childcare programs are not eligible for 7(a) loans, and the 504 program cannot lend to nonprofits either.

Microloans are the exception. The program is written to serve small businesses and certain not-for-profit childcare centers, so if you are incorporated as a nonprofit, this is your main SBA option. Start there rather than spending weeks on a 7(a) application that will not pass the eligibility check.

SBA rules change, and different SBA pages word eligibility differently. Check your situation with an SBA-approved lender or your local SBA district office before you put real time into an application.

Community development lenders

Community Development Financial Institutions, or CDFIs, are banks, credit unions, and loan funds certified by the U.S. Treasury to serve borrowers that other lenders overlook. For childcare programs, they may be the most useful option you have never heard of.

They read your application differently. Alongside your financials, a CDFI weighs what your program means to the community, how much demand there is in your area, and your track record running it. They also offer more than loans: grants, loans that can be forgiven, funding for projects still in the planning stage, and hands-on help putting a project together. CDFIs now finance early education programs across the country.

Several focus on this field. The Low Income Investment Fund finances early education nationally and has started lending specifically to licensed home-based programs. Reinvestment Fund, LISC, IFF, First Children's Finance, and the Children's Investment Fund all finance childcare facilities, and many states and cities run their own childcare facilities funds. The National Children's Facilities Network is a good place to start looking for a lender in your state. Terms and availability vary by lender and change over time, so check directly with anyone you are considering.

Grants and state programs

Grants are the only option here you do not pay back, which is why they belong at the start of your search instead of the end. Most states run start-up, expansion, and facility improvement programs for licensed providers, and many give priority to areas with too few childcare spots, to infant and toddler classrooms, to care for children with disabilities, and to low-income communities. Funding usually comes through your state's early learning agency or your local child care resource and referral agency.

The tradeoffs are real. Grant programs open and close on their own schedules, applications take time, awards often have to be spent on specific things, and the money rarely arrives quickly. Apply for grants first, but do not count on one for something urgent. Our daycare grants guide covers how to find and apply for them.

Free Grant Proposal Writing Guide

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Platform financing

A newer option has appeared for businesses that collect payments through a software platform. Instead of starting with your tax returns and your building, the provider looks at the payment history you have already built up on the platform. Because that information is already there, the application is short and you can have an answer in days instead of months.

Payment works differently too. Rather than a fixed monthly bill, you usually pay a set percentage of your sales as they come in, so the amount rises and falls with your revenue. Many of these products charge one flat fee instead of adding interest over time, so you know the full cost before you accept.

This suits everyday business costs: hiring, equipment, enrollment marketing, and getting through a slow season. It is not built for buying a building or major construction, where you want a long term and the lowest possible cost. The amounts available are based on what you process, not on the price of real estate.

The practical requirement is that you already collect tuition through the platform, and that you have been doing it long enough for there to be a history to look at.

Which option fits your program

The same option can be right for one program and wrong for another. Here are three common situations.

Home-based programs

Bank lending is the hardest route here. The business is small, the building is usually your home, and business and personal finances are often mixed together. Your most realistic options are SBA microloans, CDFIs, and state programs.

Microloans are built for amounts this size, and the nonprofit lenders who make them are used to working with very small businesses. Some CDFIs now offer products written specifically for licensed home-based programs.

One step helps more than almost anything else: separate your business and personal finances before you apply. A dedicated business bank account and clean records change how a lender sees you.

Center-based programs

If you have been running a few years with tidy books, you have the widest range of choices. Apply for any grant you qualify for, open a line of credit before you need it, and use an SBA 7(a) or 504 loan for big projects. Platform financing fits the gaps in between: a hiring push before a new classroom opens, a marketing campaign ahead of fall enrollment, or equipment you cannot wait for a grant cycle to buy.

The mistake to avoid is paying more to borrow for something a grant or an SBA loan would have covered, just because the faster option was the one in front of you.

Programs with several locations

With more than one site, the questions shift to real estate, buying other programs, and moving money between locations. SBA 504 is the standard tool for buying facilities and 7(a) for buying another program, and regular commercial lending opens up as your financials get stronger. Programs this size often qualify for New Markets Tax Credit financing on building projects in eligible areas, which is worth asking a CDFI about directly.

Comparing your options

Here is how the five routes line up side by side.

Questions to ask before you sign

Whatever route you take, get clear answers to these before you commit.

• What will this cost me in total dollars, not just the rate or the fee?
• What is the payment, and what happens to it in a month when enrollment is down?
• Is there a penalty if I pay it off early?
• Do I have to sign a personal guarantee, and does it put my home at risk?
• What do I have to report, and how often?
• Will this limit my ability to borrow again later?
• Who do I call after closing if something goes wrong?

This article is general information, not financial advice. Before you take on debt, go through the terms with your accountant or a financial advisor who knows your numbers.

Financing through brightwheel, powered by Stripe Capital

If you already collect tuition through brightwheel billing, you may be eligible for business financing through brightwheel Capital, powered by Stripe Capital.

Learn more about brightwheel Capital

Eligibility is determined by Stripe based on a combination of factors, including overall sales volume and your history of payments through brightwheel. If an offer is available, you will be notified, and you can use a slider to choose the amount that is right for your program, up to your maximum. The financing fee and payment rate adjust with the amount you choose, so you will see your terms before you accept. You pay one flat financing fee that does not change, with no interest on top of it and no late fees. If approved, your funds arrive in your linked bank account typically in as soon as 2 business days.

Payment is collected automatically as a fixed percentage of your brightwheel sales as they are processed. You pay when you get paid, paying your financing through a portion of your daily incoming tuition.* Applying might require a personal credit check under some circumstances, but this credit check does not affect your personal credit score. All financing applications are subject to review prior to approval.

If you collect tuition through brightwheel, you can start the eligibility process from your dashboard.

Stripe Capital offers financing types that include loans and merchant cash advances. All financing applications are subject to review prior to approval. In the US, Stripe Capital loans are issued by Celtic Bank, and YouLend provides Stripe Capital merchant cash advances. See your Dashboard for the terms of your offer.

*For brightwheel Capital Loans you'll have a minimum amount due each repayment period, and if the minimum amount that you pay through sales doesn’t meet the minimum your account will be automatically debited the remaining amount at the end of the period.