Planning to start your own daycare center? Below are five of the best daycare financing options at your disposal in case you find yourself lacking the capital to do so. By getting to know these loan options, their pros, cons, and everything in between, you’ll be able to pick the one that can best meet your financial needs.
So buckle up and read on for more.
Best Daycare Financing Options
Top 5 Best Daycare Financing Options
Business Credit Cards
At first glance, you probably won’t think a business credit card can bring your dream daycare center to life. But believe it or not, it’s great for jumpstarting new businesses, including your daycare center.
More specifically, the 0% introductory APR business credit card lets its holder spend interest-free money for a given amount of time. This privilege usually lasts a year (in some cases it’s longer), meaning you get to borrow money for your daycare center free of charge during that period.
Of course, business credit cards have their flaws as a daycare financing option. Chief among these is the fact that you’ll have to deal with things like APR and creditworthiness. Even 0% introductory APR business cards are subject to this, once the interest-free period expires. By making sure you settle all your debt before that expiry date, you can avoid dealing with these fees.
Commercial Real Estate Loans
Obviously, you need a good place if you want to run a successful daycare business. And in case you don’t have enough money to afford that, you can always take out a commercial real estate loan. This type of loan option is specifically made for business entities, allowing them to borrow money to acquire income-generating properties.
With long repayment terms, even longer amortization periods, and high loan-to-value ratios, commercial real estate loans allow you to get a venue for your daycare center without having to return the money in one go. Instead, you’ll have to return the money over a period lasting decades.
On the flip side, though, commercial real estate loans come with certain restrictions with regard to prepayment. This is put in place so lenders can preserve their anticipated yield on the loan. For example, if you settle the loan before the maturity date, then you’ll have to pay penalties.
Meanwhile, you can rely on equipment financing to acquire the furniture, fixtures, office equipment and supplies, and other assets you need to jumpstart your planned daycare center.
One of the advantages of taking out equipment financing is that it doesn’t just allow you to buy or lease new equipment; it will also help you pay for repairs and maintenance. This enables you to free up any money that you would otherwise use to cover the expenses that will come after, thus ensuring you have a smooth cash flow. But more importantly, equipment financing works somewhat like a secured loan. That means you could end up with bigger borrowing limits, lower interest rates, and what-not.
On the other hand, you’ll still have to pay for the loan even if the equipment you bought with it ends up getting damaged beyond repair. And even if it doesn’t prematurely break down, it’s still at risk of getting forfeited by the lenders in case you wind up defaulting.
Terms loans provide you with a lump sum of cash in exchange for certain borrowing terms. That is, lenders will give you money, and you pay back a fixed amount (with interest) over an agreed-upon schedule. Great for an established business, it can help provide working capital for your planned daycare center,
One of the things that make term loans such a fantastic financing option is that it’s not repayable on demand. This gives you more room to breathe as you come up with ways to repay your debt. You can even negotiate a repayment holiday before the repayment terms start. This enables you to settle the interest while the repayment on the capital is still frozen.
But here are a few downsides. First, term loans aren’t as flexible as other daycare financing options, meaning you could end up paying interest for the money you’re not using. Second, settling the loan before its maturity can be unwise, since there might be an extra charge (this is usually the case for term loans with fixed rates).
Lines of Credit
Finally, lines of credit (LOC for short) can help you maintain the cash flow of your newly established daycare center. This financing option works by giving you a preset borrowing limit that you can tap into whenever you need it. As long as the limit is not exceeded, you can take out and return cash from it indefinitely.
Aside from keeping your cash flow smooth, LOCs allows you to seize new opportunities whenever they appear, as well as minimize your business expenses. But more importantly, it offers you a way to build lasting relationships with its provider. By having a partnership with a lender, you’ll have more financial options to choose from, which can prove very helpful to your daycare center in the future.
However, lines of credit have their downsides, too. One, applying for one is hard. Aside from making sure your application documents are in order, you need to have a good credit score. Two, with the LOC providing you with a ready source of cash, it can be very tempting to misuse it.
Starting a daycare center is one of the best ways to earn extra and help your community in one go. So if you find yourself fundless to start one, try checking out the Best Daycare Financing Options discussed above.