5 Powerful Ways to Grow Your Daycare Business

If you want to grow your daycare business or have been considering starting a daycare center or childcare business, there is ample opportunity for growth in the current economy. The U.S. daycare market is projected to be worth $71.7 billion in 2025, despite an ongoing shortage of daycare workers. Starting a day care (or expanding your existing company) isn’t cheap. The average cost of starting a daycare is around $50,000. If you can’t cover that amount with cash up front, a daycare loan may be the right solution for your needs.

In this article, we’ll highlight a few growth strategies to help you achieve sustainable success in one of the most essential industries that cater to working families. And we’ll explore options for financing a daycare center.

Daycare Business Outlook

The demand for childcare centers is surging as an increasing number of companies require employees to return to the office. With more parents returning to work for jobs outside of the home, there is a heightened need for quality childcare services.

Depending on the location, many daycare businesses have few open slots to care for new children. This presents an opportunity for daycare owners to scale up their businesses and fill in the gaps.

How to Grow Your Daycare Business in 5 Steps

1. Get Credentials

Many states require licensing before you can operate a childcare facility. But even if your state doesn’t, getting certified can still provide you with a competitive advantage.

For example, CPR and first aid certification can make parents feel better about leaving their child in your daycare center’s care.

Other helpful certifications are the Child Development Association (CDA) certification, Early Childhood Education (ECE) certification, and the Newborn Care Specialist certification.

Parents will often pay more tuition for childcare with providers who have these certifications. The cost of obtaining these certifications is relatively low compared to the potential increased revenue they’ll render.

2. Have a Daycare Business Plan

Every small business should have a business plan. The daycare business is no exception. A business plan will help you define your services and offerings, create a budget from which to operate your business, and provide documentation when you seek a daycare loan.

As you set and meet goals, consider what you can do to expand and grow your business. You may consider options like:

• Renovating to maximize your childcare center’s space to accept more children.
• Adding new playground equipment
• Purchasing a second location

The point is to be one step ahead to stay relevant and fresh, so parents feel confident about leaving their children in your care.

3. Create a Winning Marketing Campaign

Parents don’t just Google “daycare businesses near me” and pick the first one they come across. Childcare is one of the most important considerations any parent will make. Investing in a marketing campaign can help highlight your distinctives and convince parents that your business is the best daycare for their child.

A marketing campaign can encompass many things, including:

• crafting your brand’s message
• establishing its value proposition
• creating a website and posting educational content
• having a prominent social media presence
• listing in online business directories
• claiming a Google My Business profile
• encouraging online reviews from happy parents

As you can see, marketing your daycare requires a lot of focus. For this reason, many daycare centers outsource their marketing efforts by partnering with an agency. But this requires more of an investment than some daycare operators can pull from their working capital. Therefore, some daycare business owners get a small business loan to fund those expenses.

4. Create a Competitive Advantage for Your Daycare Business

If you can, find something your daycare can offer that your competitors don’t. Here are some ideas:

• Invest in new technologies to enhance the preschool journey for parents and their kids. These can include virtual education games and apps that allow parents to communicate with you. Advanced security systems that allow parents to check on their kids are also a major plus.
• Extend your childcare services to the evening hours to cater to parents who work evenings or just need a night out.
• Have low provider-to-child ratios.
• Transform your child care center into an indoor/outdoor event space for children’s parties during after-hours.
• Start a side hustle at your daycare center. For example, if you’re a musician, teach lessons at your daycare, whether for piano, violin, or something else. Or, if you’re a former schoolteacher, offering tutoring lessons to school-aged children after school.

5. Explore Daycare Loans When Needed to Grow Your Daycare Business

At the center of every successful daycare business is good financial management. This means having adequate cash flow to meet your childcare facility’s operational needs, ensuring consistent working capital, tracking expenses and revenue, staying within budget, and making smart financial decisions.

In addition to funding startup costs when you first open your daycare, you’ll likely have other times when you’ll need a daycare loan to facilitate the growth of your business.

What Can Financing a Daycare Center Do for Your Business?

On top of startup costs, operating costs for running a small daycare can be upwards of $3,000 a month. During a slow season, or if cash flow is low while you build your brand or expand to find new customers, a daycare loan can bolster your working capital.

Daycare loans can also be used for other expenses you may run into as you grow your daycare business, like purchasing new equipment, and paying for a new location.

Daycare Center Financing Options

You can apply for daycare loans from traditional lenders, like banks and credit unions, or alternative or online lenders.

Traditional Lenders

Banks and credit unions are considered traditional lenders. Historically, bank loans were the most common source of funding for small business owners. Daycare loans from traditional lenders often have good rates, however, the application process can be rigorous and lengthy.

A bank or credit union is also likely to have higher credit score requirements than other types of lenders, especially if you are applying for a loan that is not secured with collateral.

Traditional lenders typically require at least two to three years in business and $150,000 to $300,000 in annual revenue to offer you a loan. Bear in mind you’ll need to provide proof and documentation of these underwriting requirements, which typically include financial statements, tax returns, and copies of your business bank statements.

The types of small business financing available through traditional lenders include:

• business lines of credit
• business credit cards
• term loans
• commercial real estate loans
• SBA loans

Alternative or Online Lenders

Many small business owners today prefer working with alternative lenders for financing. Alternative lenders and online loan specialists often work exclusively with small business owners to get them funding.

Because of this, alternative lenders usually have more intricate knowledge of various industries, including the daycare industry. They understand the various factors that contribute to the success of a business. Many online loan specialists partner with small business owners before they’re even ready for a loan to prepare them for the application process and help them get the best terms.

Alternative lenders also offer more flexible financing solutions, including term loans, SBA loans, commercial real estate loans, working capital loans, and revenue based financing.

Repayment terms vary depending on the type of financing. For instance, a short-term loan is repaid monthly with interest. On the other hand, the repayment terms for revenue-based financing is based on a percentage of estimated future receivables.

For some, the biggest appeal of working with an alternative loan specialist is the potential for fast funding. Alternative lenders can often provide funding significantly faster than traditional lenders.

Small Business Administration Loans for Daycare Businesses

Both traditional and online lenders can provide SBA loans, and these are popular options for daycare businesses, so they are worth exploring in depth.

SBA loans are partially guaranteed by the U.S. Small Business Administration (SBA), and as such, lenders tend to provide better terms than with traditional loans.

The SBA 7 loan program offers up to $5 million in financing for small business owners operating in the United States.

Daycare center small business owners can use an SBA 7 loan for:

• Equipment purchases
• Commercial real estate purchases, refinancing, and renovations or upgrades
• To refinance business debt
• For short and long-term working capital
• To buy furniture
• To acquire another daycare business
• A combination of the above

Various eligibility factors must be met to qualify for a SBA 7 loan, including:

• A minimum FICO credit score of 650 or a business credit score of 155
• At least one to three years in business, depending on creditworthiness (the higher your credit score, the less time is required in business)
• At least $50,000 in annual revenue (for a working capital loan; daycare businesses with higher revenue can qualify for higher loan amounts)

SBA loans offer some of the most generous repayment terms of all small business loans. However, the loan application process is extensive and can take up to three months. The interest rate on an SBA loan can be fixed or variable.

FAQs

How can I make my daycare more successful?

Understanding your market and competitors, having a properly trained staff to keep children safe, identifying your unique value proposition, and careful financial planning can help you become successful. If you need capital, you may also benefit from a daycare loan.

Can I start a childcare business with no money up front?

You’ll need funding from one or more sources to start a daycare if you don’t have sufficient cash reserves. Some daycare owners fund their initial startup costs with community fundraising or state funded childcare business grants. You can seek a daycare loan once your business is established.

Can I get financing if I can’t accurately predict month-to-month revenue?

Yes. You may be able to qualify for revenue-based financing or a business line of credit, for example. It may also benefit you to calculate your minimum monthly income, average monthly income, and maximum monthly income so that you can show the range of your financial projections.

Can I get a business loan for home daycare?

Yes. You may qualify for an SBA microloan of up to $50,000. Or you can also look for lenders that offer products targeted towards daycares and in-home daycare providers.

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