How to Finance a Daycare Business
While a home daycare business plan can be started with very little initial investment, you will need access to some funding if you are to get started off properly.
Startup costs for a daycare can run anywhere between a few hundred dollars and hundreds or thousands of dollars. It is important to decide on a concept and the size of the operation that you want to start out with before you try to calculate how much you will need in the way of funding.
It also is wise to estimate your funding requirements well in advance as you may encounter some delays getting access to capital as application forms go through institutions slowly or you have to wait for decisions from investors.
There are a variety of financing options available to a child care business startup. Let’s take a closer look at some of these daycare funding options in detail.
The Independent Route
Firstly, you should try to avoid going into debt right away. If possible, fund your daycare business independently and reserve your access to credit. Things may not go as well as planned during your first six months in business and you may need to seek extra funding to tide you over if your business is growing at a rate that is slower than expected.
The options here are to use your own savings, sell off personal assets or to ask friends or relatives for financial support. Funding from family members is ideal as it will usually be low interest with a flexible repayment schedule. Be careful not to let things get out of control though when it comes to repayment or you may risk damaging relationships with loved ones.
Funding your own daycare venture is the course of action that is most recommended. Although for many this is just not possible and they have to look for outside financing or investors for at least part of their daycare startup costs.
Funding from Partners or Investors
If there are no close friends or relatives lining up to lend you money you may be able to find an investor or partner. In return for their funding you could give them an equity stake and some degree of influence and control over the daycare depending on how involved they wanted to be.
Venture capital firms can find these kinds of investors for you but they are usually only concerned with larger startups. It is most likely that you would find an equity investor or business partner through your personal social network or your daycare industry connections.
Commercial Banks and Finance Companies
Most commercial banks offer small business loans with varying interest rates and varying repayment schedules. Even if you don’t need a loan right away it can be a good idea to establish a line of credit with a local bank that you can access if you need funding at short notice.
Have a solid daycare business plan that you can take to them and make sure that you are prepared to prove to them that you have sufficient funding to cover at least part of the startup costs. It is likely that you will need some kind of collateral that you can sign over to the bank to give them a guarantee that they will be paid back. Having a good account history with the bank in question can also help to secure financing.
Government Grants and Small Business Loans
Various government agencies offer small business loans or even grants that don’t have to be repaid at all. The problem here though is that many other entrepreneurs are chasing these limited opportunities so if you want to have any chance of success you have to have a worthy application that outlines not only your business plan but also what your business will do to help your community.
Even though daycare centers are a unique business model in terms of the service that they provide to families it is still difficult to qualify for any type of government funding unless you are a non-profit.
Some states do more than others to provide assistance to prospective daycare owners. Some states have daycare loans programs that can help you to access daycare funding quickly and at more affordable interest rates.
Buy Now, Pay Later
You may be able to avoid having to pay for all of your equipment and supplies upfront. Leasing is one option or you may be able to find a supplier with a financing plan.
If you are renting commercial business premises to operate a daycare then you may be able to convince the landlord to defer some of your rent. In other words you would pay a very minimal rent during the first few months and then make up the shortfalls by having the relevant amount added on to future monthly rent payments.
Credit Card Funding
As a last resort, if all else fails you can simply get some cash advances on a variety of credit cards. Beware though as this method is dangerous due to the high interest rates involved and should only be done if you are confident that your business will grow fast enough to allow you to start making sizable repayments within a few months.
Whatever financing method you use you should make sure that you won’t be handing any of the control of your daycare business over to your financiers unless you are perfectly happy with the arrangement. Whether you fund your daycare business yourself or through some form of external financing, make sure that you are putting these funds to the best possible use, in a way that allows you to be successful and achieve a high return on investment.
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