Funding Sources for New Childcare Businesses

Starting a childcare business can be the realization of a long-held dream, but a lack of sufficient funding can be an insurmountable obstacle for hopeful business owners.

Researching the myriad options and funding sources for new childcare businesses is an important, albeit overwhelming, aspect of getting a daycare or home-based center out of the conceptual stages and on track for a grand opening. Misconceptions about funding sources and confusion regarding eligibility for some plans are far from uncommon, and can serve to make the process even more overwhelming for those hoping to start a new business. Understanding some basic information about new childcare businesses and their potential sources of funding is the best way to avoid these misunderstandings, which can derail a childcare center before a business plan is finalized.

Information About Sources of Funding

While it’s true that there are government grants which can help to fund a new childcare start-up, there is a clear distinction between for-profit childcare businesses and non-profit organizations in relation to grant eligibility.

Government grants are funding sources which are not repaid by the recipient, which can limit the burden of loan payments for brand new childcare businesses. Unfortunately for many hopeful business owners, grants from the federal government are also next to impossible to obtain if a business will be classified as a “for-profit” childcare organization. There may be some grant funding available on the state or local level through state childcare agencies, but much of the available grant funding even on the state level tends to be earmarked for non-profit use. A small number of states have developed funding and loan programs which are specifically directed at child care programs, and information about the availability of these programs can usually be obtained through the state agency responsible for childcare licensing.

While grant funding may be difficult for most new childcare businesses to obtain, there are some programs offered by the Small Business Administration and local development programs which can help new business owners to obtain access to sources of funding at affordable rates. These specialty loans may have specific requirements which must be met in order for a new business to be eligible, and these requirements will vary. The Child Care and Development fund agency in your state will also be able to provide valuable information about potential funding sources.

Traditional Funding Sources for New Childcare Businesses

Though small business loans can be somewhat difficult to obtain, they tend to be more readily available to the prospective owners of new childcare businesses which are not designated non-profit organizations than government grants. While you may feel most comfortable starting your loan search through the bank where you already hold an account, you should be prepared to expand your efforts beyond a single lender. Depending upon the strength of your business plan and how creditworthy you are, it may be necessary to work with several banks before finding a lender who will agree to grant a small business loan with reasonable terms.

The key to finding the right funding sources is to be persistent, and to exhaust all possible avenues of lending. It can be a time-consuming and tedious process, especially if you have limited or questionable personal credit. It may also be more reasonable to start small, establishing your business as a home-based daycare center through smaller, more easily accessible micro loans first. With appropriate growth and strong projections for future increases, you may find it easier to then move into a commercial property with a larger loan. Locating funding sources isn’t impossible for new childcare businesses, but it will require dedication and perseverance, and perhaps a bit of compromise along the way.