Funding Your Childcare Business
Financial How-To Series: Funding Your Childcare Center
Considering how to fund your home daycare, childcare center, or preschool? Want to expand your home daycare into a childcare center out of your home? Read on for information about how you achieve your funding goals.
There are three main ways to have the money to open a daycare: private funding, obtaining grants, or getting a loan. Before trying to get money to open a daycare center, be sure to have a clear, detailed business plan. It will require you to know how much money you will need to start and operate your daycare. Having a business plan will also be necessary if you want to obtain a bank or government loan. See more on creating a business plan here, https://www.sba.gov/sites/default/files/files/pub_mp29.pdf.
Private Funding
Private funding is using your own savings or borrowing from family and/or friends to start or grow your daycare. This is a popular method for home daycare providers because you do not have to lease or rent a space to provide services and there are tax deductions you can tax advantage of by operating out of your home.
The advantage to using private funds is that you do not have to pay back with interest added to the original amount. You also do not go into debt by taking out loans or using credit cards. The disadvantage can be that you may miss out on the interest that can grow your savings account because you have used the money. Also, if you borrow money from family or friends, not paying them back on schedule may put a strain on those relationships. Ideally, you would be profitable. Either way, be sure everyone is clear on your timeline for repayment upfront and let anyone you borrowed money from know when you are not scheduled to meet your estimated profit timeline.
Some home daycare providers who are looking to expand their business in the future save part of the profits from their home daycare to pay for opening a childcare center or preschool that will operate outside of the home. Being able to save the amount of money needed to lease a building and start a center, roughly $20,000 and up, requires good financial planning, including building and sticking to a budget. Smart budgeting starts with keeping your business and personal money separate so you can track every cent coming in and out of your business. This is important for all businesses to do. See more about this in my previous blog post at https://www.academiabookkeeping.com/new-blog/2017/8/29/the-biggest-business-finance-no-no)
Grants
A second way to fund your daycare dreams is to obtain grants. A grant is money given to you for a specific purpose that you do not have to repay. Local, state, and federal governments offer grants, though usually to nonprofit organizations, not private (for-profit) businesses. They tend to be to the benefit of specified societal groups, such as low income, rural, military, special needs, and others. One such grant program from the federal government is the Childcare and Development Block Grant, https://www2.ed.gov/about/offices/list/oii/nonpublic/childcare.html, that provide low-income families with the opportunity to have childcare while they attend school. See the resources at the end of this post for more information about other government grants.
You can also look for grants from private (non-government) institutions. Local grantors may be available to you, especially if you serve a specific societal group, as mentioned above. Your local small business administration (SBA) may be able to provide you with guidance from your local community. Here is a list of district SBA offices, https://www.sba.gov/tools/local-assistance/districtoffices.
Some state grants available (resource: https://www.fundera.com/blog/small-business-grants)
1.Maryland Child Care Quality Incentive Grant Program http://earlychildhood.marylandpublicschools.org/funding-opportunities/child-care-quality-incentive-grant-program
2. Minnesota REETAIN, http://childcareawaremn.org/professionals-caregivers/grants-scholarships/reetain-bonuses
3. Nebraska Childcare Grant
http://dhhs.ne.gov/Pages/grants_loans.aspx
4. Walla Walla Washington - https://www.wwcc.edu/CMS/index.php?id=907
Some women-owned business grants available
Eilleen Fisher Grant
https://www.eileenfisher.com/grants/women-owned-business/grant-program-guidelines
2. Smart Women Grant from Zions Bank (info from 2016, but call to inquire about current grants) - https://www.zionsbank.com/community/pr/2016/march/pr20160321/
Loans
Obtaining a loan to start your childcare center or preschool is often the first thought for many entrepreneurs. However, you may want to consider the two previously discussed options first, because obtaining and repaying a loan can be more involved. Both private institutions, such as commercial lenders (banks), and government institutions offer loans to start a business. With a loan, you are required to pay back what you borrow within a specified time frame, and you are often charged interest on the borrowed amount. A business plan will be required when applying for a loan, as will collateral and good credit. Therefore, when considering a loan, you want to be sure you know all the terms of the agreement. If you have any questions about any part of the agreement be sure to ask and seek counsel from a knowledgeable staff person from your local SBA office.
Government loans may charge less interest than commercial loans. See GovLoans.gov (https://www.govloans.gov/) Also your local credit union may offer rates that are more friendly to local businesses.
These three main options for funding your childcare program can provide you with the means for getting up and running, or even extending your program. Please see the resources below for more helpful information. If you have any questions about your business finances or are interested in tracking your income and expenses, feel free to reach out to me at mhago@academiabookkeeping.com or visit my website, www.academiabookkeeping.com. I have affordable start-up pricing as well as more inclusive packages from established businesses.
Resources:
SBA starting a Childcare Business - https://www.sba.gov/blogs/7-tips-starting-successful-and-legal-child-care-business
Informational list of funding sources for starting a daycare - https://www.nal.usda.gov/ric/starting-child-care-center#private
Informational article about private funding/grantors - http://www.schoolgrantsblog.com/how-can-i-find-the-grants-for-purchasing-educational-equipments-for-my-home-daycare/
Article with information on government grants - http://smallbusiness.chron.com/government-daycare-center-grants-12723.html
Article with information on government grants - http://childcareaware.org/providers/planning-for-success/preparing-a-budget/
Business resources - https://brc.zionsbank.com/