Financing Your Daycare Business

There are many outstanding ideas which never get underway, or do get underway and ultimately fail, due largely to inadequate initial funding. If you are unsure of where to go or whom to speak with, relax-there are many sources of financing for your daycare business. Public funding is seldom available for daycare start-ups, yet there are a number of sources for loans and grants you can apply to such as commercial banks, government agencies, private sources and certain grant programs. Venture capitalists are unlikely to finance daycare centers as they tend to concentrate on growth firms rather than start-up businesses-unless you happen to be lucky enough to personally know a venture capitalist!

Private Sources

Private sources will encompass your own savings account, or funds from friends or relatives. The advantage of using your own money is, obviously, you are not going to charge yourself interest, however you will be losing whatever interest you were previously garnering on the money you had stashed in savings. You also lose the use of your savings account as a cushion for any future emergencies which could crop up. The advantages of borrowing for your daycare business from friends or family are that there is no legal limit on how much you can borrow and the terms are usually somewhat more flexible than those of commercial sources. The disadvantage is simple--should you not repay the money on time, or have a falling out with the person you borrowed from, then a family or friend relationship can be ruined, possibly for life.

Commercial Banks

All banks have a commercial division, and these divisions will offer short-term or long-term loans at the prevailing interest rates. Banks will require collateral and good credit in order to loan you money to open your daycare center. They will also calculate the level of risk your business offers; if you have a strong, well-thought-out business plan available which details your daycare finances, your chances of getting your loan are much higher.

Government Sources

Federal, state and local governmental agencies offer many types of special financing to small businesses, many of which are administered under government guidelines and funded by the government. Your loan may come directly from your state, or even through a state-chartered corporation, and are generally used for long-term needs such as equipment. Most states will require collateral, just like the banks; should you default on your loan, the state does not want to lose its investment. You can contact the Small Business Administration (SBA) in your area-they can offer you an up-to-date list of current loan programs and their requirements, and can assist you in putting together a comprehensive business plan for your daycare as well.

Grant Programs

Grants are money provided to businesses that you never have to repay, and are generally funded by federal or state government agencies, or, in some cases, private foundations. While grants are usually reserved for non-profit organizations or research and development, there are a few exceptions. Search the Internet for local or federal grant funds which could be available for your daycare center, but don't pay money for lists or books-they are mostly a waste of your money, and the true federal and state grant listings are free.

Business Plan or Business Proposal

No matter where you apply for financial assistance, you definitely need a good business plan or proposal which includes your purpose, or the reasons you want to start a daycare center, your goals as far as what type center you are proposing and why it is necessary, and the procedure you will use to start your daycare business. You will need a comprehensive budget, which clearly shows how much it will cost to both start and to operate your business, and an evaluation page which details how you will determine if your business is fully meeting your original objectives. Review your business plan or proposal carefully; if your proposal is turned down, politely ask why so you can adjust your proposal or business plan accordingly. Once you have secured your financing, you will then need to develop a sound financial management plan for operation. Finding money for your proposed daycare may take some work-but the end results are well-worth the time and energy you put into funding.