By: Tricia Hoffman, Senior Vice President – Business Development Officer at Gulf Coast Small Business Lending
The childcare industry is experiencing significant growth, presenting a valuable opportunity for entrepreneurs. For those looking to start, expand, or acquire a daycare (or a similar, related business), securing the right financing is a critical first step. An SBA 7(a) loan can be an excellent tool to help you achieve your business goals.
Whether you are an independent or franchise operator, an SBA 7(a) loan is an excellent option to expand, acquire, update, or start-up your business.
This guide will explain how an SBA 7(a) loan can be used for your daycare business, from construction and acquisition to refinancing. We will also cover the eligibility requirements and benefits, providing a clear path forward for aspiring and current daycare owners.
Why an SBA 7(a) Loan is a Great Fit for Daycares
The SBA 7(a) loan is the U.S. Small Business Administration’s flagship lending program, designed to help small business owners access capital. It’s known for its versatility, offering funds for a wide range of business needs with favorable terms. Loans are available up to $5 million, with repayment periods of up to 25 years for real estate and 7-10 years for working capital, equipment, closing costs, and other uses of loan proceeds.
For childcare, daycare, preschool, or educational service business owners, the SBA 7(a) program is particularly beneficial. Unlike most conventional loans, the SBA 7(a) loan program allows for the financing of goodwill and other intangible assets, which is often a major component when purchasing an existing business. This flexibility makes it an ideal choice for the unique needs of the childcare industry.
How to Use an SBA 7(a) Loan for Your Daycare
The funds from an SBA 7(a) loan can be applied to nearly any legitimate business expense. Here are some of the most common ways daycare owners use this financing:
Purchasing an Existing Daycare
Acquiring an established daycare is a popular use of the SBA 7(a) loan. The loan can cover the purchase price of the business, including its real estate, equipment, and goodwill. This allows you to step into a turnkey operation with an existing client base and revenue stream.
Note that Gulf Coast Small Business Lending places no limit on the amount of goodwill we will finance with an SBA 7(a) loan when the buyer of an existing business has good personal credit and relevant industry experience coupled with excellent business cash flow.
New Construction
If you plan to build a daycare from the ground up, an SBA 7(a) loan can finance the entire project. This includes the cost of land, construction, and all the necessary furnishings and equipment—from playground structures and educational materials to security systems and kitchen appliances. A unique feature of an SBA 7(a) construction loan is that it is structured as “construction to permanent” so that you only need to apply for one loan which will cover the construction process and once completed, will “term out” into a long term loan without the need to secure a new, permanent loan. One loan with one closing covers the entire project!
Refinancing Existing Business Debt
Are you currently operating a childcare business that has business debt with unfavorable terms? Perhaps the loan amortization term is very short, resulting in large monthly payments. Or there might be a balloon payment coming due very soon. If this is your situation, you may be able to refinance the loan with an SBA 7(a) loan. There are several steps to determine if your current debt meets the eligibility requirements. We would be happy to discuss these details with you in a short phone call. Typically, your loan must be current (meaning not past due) and you must be able to demonstrate that refinancing with an SBA 7(a) loan will benefit the business. Our team of professionals has years of experience and can quickly help you to assess if you meet the requirements to consider a refinance.
Expanding or Renovating Your Facility
If your daycare is growing, you might need more space or updated facilities. An SBA 7(a) loan can provide the capital needed for renovations, expansions, or purchasing new equipment to accommodate more children in your facility or broaden the services you are able to offer.
Understanding the Eligibility Requirements
To qualify for an SBA 7(a) loan, your business must meet certain criteria set by the Small Business Administration (SBA). Key requirements include:
- For-Profit Business: Your daycare must operate as a for-profit entity.
- U.S. Operations: The business must be located and operate within the United States or its territories.
- Owner Equity: You must have some of your own capital invested in the business. The total amount depends on the project specifics, but you should typically anticipate at least 10%.
- U.S. citizen: Your business must be owned by U.S. citizens or lawful permanent residents residing within the United States.
Upon application, we will also evaluate your personal credit history, business plan, cash flow projections, and industry experience to determine your eligibility. If your business is eligible, we will review your unique situation and needs as we work to structure a loan that is tailored to your specific needs.
Note: This is not a commitment to lend. Loans are subject to credit and collateral approval. Additional terms, restrictions and limitations may apply.
Taking the Next Step with Gulf Coast Small Business Lending
Navigating the SBA loan process can feel complex, but you don’t have to do it alone. With a strong business plan and the right guidance, an SBA 7(a) loan can provide the foundation for a thriving daycare business.
At Gulf Coast Small Business Lending, we specialize in helping entrepreneurs like you access the capital they need to succeed. Our team is dedicated to simplifying the lending process and finding a solution tailored to your specific goals. Visit our SBA Loans section of our website to learn more about our options and how we can help you make your dream a reality. When you are ready to discuss specific details, or if you have questions, you can find a listing of our experienced professionals here: Our People.
About Tricia Hoffman
Tricia Hoffman has been actively involved in SBA lending for over 20 years serving as both a Business Development Officer and Portfolio Manager during her career. Tricia graduated with a degree in Economics and Accounting from the University of Tampa. After graduation, Tricia worked as a commercial real estate loan officer, special assets manager, and private banker in the Tampa Bay area. In 1998 she joined with national SBA lender and began working with small business clients throughout the U.S. Since 1998 Tricia has provided financing for hundreds of borrowers across many industries. When not originating SBA loans you can often find Tricia on the golf course, on the beach, or out for a hike.
Products and services offered by Gulf Coast Small Business Lending, a division of Gulf Coast Bank & Trust Co. Nothing herein shall be construed as a commitment to lend. All loans are subject to credit and collateral approval. Additional terms, restrictions and limitations may apply. Loans are only available to U.S. citizens and residents. Member FDIC – Equal Housing Lender.