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Daycare Business Loans for Franchises and Independents
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How to Build a Successful Daycare Business
Summary: Independent daycare businesses and franchises offer freedom and full profits, while franchises provide proven systems, branding and support. SBA daycare loans cover diverse needs like upgrades, payroll, and marketing. With expert lenders like First Bank of the Lake, funding your daycare business is within reach however you choose.
Starting or expanding a daycare business can require a significant capital investment, from securing facilities to purchasing equipment and covering operational expenses. Whether you’re launching an independent daycare business or investing in a daycare franchise, understanding your financing options is crucial for success. We will explore how Small Business Administration (SBA) loans can help you achieve your childcare entrepreneurship goals.
The daycare industry represents a vital service in communities across America, providing essential support for working families while creating meaningful business opportunities. With proper funding, your daycare business can make a lasting impact on children’s development while building a sustainable enterprise.
What is a Daycare Business?
A daycare business provides supervised care and early childhood education services for children, typically ranging from infants to school-age kids. These businesses serve working parents by offering safe, nurturing environments where children can learn, play, and develop social skills. Daycare businesses can range from small home-based operations to large commercial centers serving hundreds of families.
The daycare industry in the United States represents a substantial economic sector. According to industry data, there are approximately 735,000 childcare establishments operating across the country, generating over $60 billion in annual revenue. The demand for quality daycare services continues to grow as more families require dual-income households to meet their financial needs.
The industry encompasses various business models, from small family daycare operations to large commercial centers. This diversity creates opportunities for entrepreneurs at different investment levels, whether you’re considering a modest home-based daycare business or a comprehensive childcare facility.
What is a Daycare Franchise Business?
A daycare franchise operates under an established brand’s proven system, providing franchisees with training, marketing support, curriculum development, and operational guidance.
The childcare industry features over 50 unique daycare franchises operating throughout the United States. These established brands offer proven business models, comprehensive training programs, and ongoing operational support to help new owners succeed. Popular daycare franchise options include brands like KinderCare, Goddard School, and Primrose Schools, each offering different investment levels and target markets.
We have many epubs and calculators for franchises, check out our Franchise Calculator and our How to Buy a Franchise ePub.

Daycare Franchise vs. Independent Daycare Business
The Steps to Starting a Daycare Business
Launching a successful daycare business requires careful planning and execution. Here are the key steps to get started:
1. Develop Your Business Plan and Set Up Your Financing
Create a comprehensive business plan outlining your target market, services offered, pricing structure, and financial projections. Include details about your facility requirements, staffing needs, and marketing strategy. Apply for an SBA loan with a preferred SBA lender.
2. Secure Proper Licensing and Permits
Research state and local licensing requirements for childcare providers. Most states require specific training, background checks, and facility inspections before issuing daycare licenses. If you provide educational services, teaching licenses may also be required based on your accreditation and the franchise requirements.
3. Choose Your Location
Select a location that’s easily accessible for parents, meets zoning requirements, and provides adequate space for children’s activities. Consider factors like parking availability, safety, and proximity to residential areas or business districts.
4. Obtain Insurance Coverage
Secure comprehensive liability insurance, property insurance, and professional indemnity coverage to protect your business and provide peace of mind for parents.
5. Hire and Train Staff
Recruit qualified caregivers who meet state requirements for childcare workers. Invest in comprehensive training programs to ensure consistent, high-quality care.
6. Create Safety Protocols
Establish detailed safety procedures, emergency plans, and health policies to maintain a secure environment for children and staff.
7. Market Your Services
Develop marketing strategies to reach your target audience, including online presence, community outreach, and partnerships with local businesses.
Financing a Daycare Business with SBA 7a Loans
Daycare businesses are eligible for SBA financing through both U.S. government backed SBA 7a and SBA 504 loan programs. These government-backed loans offer favorable terms and lower down payment requirements compared to conventional business loans, making them an attractive option for childcare entrepreneurs.
SBA loans recognize the essential nature of childcare services and support entrepreneurs who want to serve their communities while building successful daycare businesses. The programs accommodate various business models, from independent operations to daycare franchise investments.
SBA 7a daycare franchise loans are one of the most popular daycare business loans because of their flexibility and wide range of uses. Whether you’re launching a new daycare business, expanding existing daycare franchises, or purchasing real estate and equipment, an SBA 7a daycare franchise loan can provide the capital you need. Loan amounts typically range from $100,000 to $5 million, giving daycare businesses the ability to scale with confidence. Collateral is required when available, but a daycare business loan will not be declined solely due to limited collateral. Owners with a 20% or greater share in daycare franchises must also provide a personal guarantee.
Loans over $150,000 may have prepayment penalties for the first three years, while smaller loans typically don’t carry prepayment restrictions. The SBA charges guarantee fees based on loan amount and term, typically ranging from 0% to 3.75% of the guaranteed portion and these fees can often be financed into the loan amount. The program requires owner contribution of at least 10%, creating a 90% loan-to-value ratio for qualified projects.
We have many epubs and calculators for SBA loans, check out our:
7(a) Loans | |
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Maximum Loan Amount | $5 million |
Percent of Guaranty | 85% guaranty for loans of $150,000 or less; 75% guaranty for loans greater than $150,000 (up to $3.75M maximum guaranty) |
Eligible Use of Proceeds | Term Loan. Expansion/renovation; new construction, purchase land or buildings; purchase equipment, fixtures, leasehold improvements; working capital; refinance debt for compelling reasons; for inventory or starting or purchasing a business. Only owner-occupied commercial real estate is eligible. |
Maturity | Depends on ability to repay. Generally, working capital not to exceed 10 years; Equipment, fixtures, or furniture not to exceed 10 years. Except term may be up to 15 years if IRS asset class useful life supports longer term. Lender must document in credit memo justification of any term that exceeds 10 years; real estate up to 25 years. No balloons or demand features permitted. |
Maximum Interest Rates | Effective Jan. 1, 2025 $50,000 or less Prime + 6.5% $50,001 - $250,000 Prime + 6% $250,001 - $350,000 Prime + 4.50% $350,001 and greater Prime + 3% Fixed Rate: See Downloads and Resources section. |
Who Qualifies | Must be a for-profit business & meet SBA size standards; show good character, credit, management, and ability to repay. Must be an eligible type of business. Prepayment penalty for loans with maturities of 15 years or more if prepaid during first 3 years. (5% year 1, 3% year 2 and 1% year 3) |
Benefits to Borrowers | Long-term financing; Improved cash flow; Fixed maturity; No balloons; No prepayment penalty (under 15 years) |
7(a) Small Loans Is any 7(a) loan $500,000 and under, except the Community Advantage and Express loans | |
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Maximum Loan Amount | $500,000 |
Percent of Guaranty | Same as 7(a) Loans |
Eligible Use of Proceeds | Same as 7(a) Loans |
Maturity | Same as 7(a) Loans |
Maximum Interest Rates | Same as 7(a) Loans |
Who Qualifies | Same as 7(a) Plus, all loan applications will be credit scored by SBA. If not an acceptable score, the loan can be submitted via full standard 7(a) or Express. |
Benefits to Borrowers | Same as 7(a) Loans |
SBA Express | |
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Maximum Loan Amount | $500,000 |
Percent of Guaranty | 50% regardless of loan amount. |
Eligible Use of Proceeds | May be used for revolving lines of credit (must have term-out period not less than draw period) or for a term loan. |
Maturity | LOC: Max period Revolver = 60 mo.; Max term out period = 60 mo. For total of 10 yrs. Term loan: same as 7(a) |
Maximum Interest Rates | Same as 7(a) Loans |
Who Qualifies | Same as 7(a) Loans |
Benefits to Borrowers | Fast turnaround; Streamlined process; Easy-to-use line of credit |
Financing a Daycare Business with SBA 504 Loans
The SBA 504 program is an excellent option for daycare franchise loans or general loans for purchasing real estate or making substantial equipment investments. SBA 504 debentures offer fixed interest rates for the life of the loan, providing payment predictability. Terms typically extend 10 or 20 years, depending on the project type and borrower qualifications.
The program accommodates both real estate purchases and large fixed equipment investments. Real estate projects often qualify for 20-year terms, while equipment financing typically uses 10-year terms.
The SBA 504 loan program uses a three-part structure designed to make large projects more affordable. Typically, the lender funds 50% of the project, a Certified Development Company (CDC) provides 40% with SBA support, and the borrower invests at least 10% in equity. This approach gives businesses access to higher loan amounts, with combined financing reaching up to $15 million or higher in certain cases, such as green energy projects or manufacturing facilities. SBA 504 loans are ideal for real estate purchases and substantial fixed equipment investments.
We have dozens of epubs and calculators for SBA loans, check out:
504 Loans Provided through Certified Development Companies (CDCs) which are licensed by SBA | |
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Maximum Loan Amount | 504 CDC maximum amount ranges from $5 million to $5.5 million, depending on type of business or project. |
Percent of Guaranty | Project costs financed as follows: CDC: up to 40% Lender: 50% (Non-guaranteed) Equity: 10% plus additional 5% if new business and/or 5% if special use property |
Eligible Use of Proceeds | Long-term, fixed-asset loans; Lender (non-guaranteed) financing secured by first lien on project assets. CDC loan provided from SBA 100% guaranteed debenture sold to investors at fixed rate secured by 2nd lien. |
Maturity | CDC Loan: 10, 20 or 25-year term fixed interest rate. Lender Loan: Non-guaranteed financing may have a shorter term. May be fixed or adjustable interest rate. |
Maximum Interest Rates | Fixed rate on 504 Loan established when the debenture backed loan is sold. Declining prepayment penalty for 1/2 of term. |
Who Qualifies | Alternative Size Standard: For-profit businesses that do not exceed $15M in tangible net worth, and do not have an average two full fiscal year net income over $5M. Owner Occupied 51% for existing building or 60% for new construction of a building. |
Benefits to Borrowers | Low down payment - equity (10, 15 or 20 percent) (The equity contribution may be borrowed as long as it is not from an SBA loan) Fees can be financed; SBA /CDC Portion: Long-term fixed rate Full amortization and No balloons |
504 Loan Refinancing Program (Permanent) Provided through Certified Development Companies (CDCs) which are licensed by SBA. See notice 5000-808830 for details. | |
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Maximum Loan Amount | Same as 504 |
Percent of Guaranty | Loan to Value (LTV) with Qualified Debt(s) 90%. For projects that include “Eligible Business Expenses (EBE)” the LTV is 85%. EBE may not exceed 20% of the fixed asset appraisal value |
Eligible Use of Proceeds | Refinancing of Qualified Debt (85% of the proceeds must have been originally used to acquire an Eligible Fixed Asset), and “Other Secured Debt” secured by the Eligible Fix Asset. May include the financing of eligible Business Operating Expenses as part of the refinancing. |
Maturity | Same as 504 |
Maximum Interest Rates | Same as 504 |
Who Qualifies | Was incurred not less than 6 months prior to date of application. Has been secured by Eligible Fixed Asset(s) for at least six months; May include debt subject to a federal guarantee under certain conditions. Cannot be a 504 Third Party Loan which is part of an existing SBA 504 project. |
Benefits to Borrowers | Business can access equity in their commercial real estate for business operating expenses or refinance property on reasonable terms. Fees can be financed; SBA /CDC Portion: Long-term fixed rate Full amortization and No balloons |
Applying for an SBA Daycare Loan
The application process begins with selecting an approved SBA lender like First Bank of the Lake, who understands childcare industry requirements. Gather required documentation and work with your lender to complete the application accurately and thoroughly. The SBA loan application process for a daycare business involves these steps:
- Prepare a Business Plan – Include financial projections and market analysis.
- Gather Required Documents – Collect tax returns, financial statements, licenses, and more.
- Choose the Right SBA Loan – Decide between 7a or 504 loans based on your needs.
- Find an SBA Lender – Work with an experienced lender like First Bank of the Lake.
- Submit Your Application – Complete forms and provide supporting documents.
- Underwriting and Review – Lender evaluates your application and creditworthiness.
- Loan Approval and Closing – Sign agreements and receive funds.
How Daycare Franchise Loans Can Be Used
SBA 7a loans for daycare businesses offer flexibility in fund usage, supporting almost any business purpose and includes:
- Operational expenses
- Payroll and benefits
- Utilities and rent
- Facility development including upgrading playgrounds
- Regulatory and professional costs
- Legal and professional fees
- Marketing and sales
- Technology
- Transportation

SBA Loan Approval Times
SBA loan approval timelines vary based on loan type, lender efficiency, and application completeness. Typically, SBA 7a loans process within 30-60 days, while SBA 504 loans may require 60-90 days due to their more complex structure and third party reports.
Working with experienced SBA lenders like First Bank of the Lake can significantly streamline the process. Our expertise in daycare business financing helps ensure applications are properly prepared and submitted efficiently.
To qualify for SBA financing, daycare businesses must meet standard SBA eligibility criteria including small business size standards, owner-operator requirements, and acceptable use of funds. Most daycare businesses easily meet size requirements, as the industry is predominantly made up of small, locally-owned operations.
SBA Loan Documents Needed
Here are some of the documents typically required for an SBA loan for a daycare facility.
- Business Plan – Detailed plan including financial projections and market analysis.
- Loan Application Form – Completed SBA loan application (Form 1919 or equivalent).
- Personal Financial Statement – SBA Form 413 for all owners.
- Tax Returns – Personal and business tax returns (last 2-3 years).
- Business Licenses and Permits – Proof of childcare licensing and compliance.
- Profit and Loss Statement – Year-to-date financials for the business.
- Balance Sheet – Current and detailed business balance sheet.
- Cash Flow Projections – Future cash flow estimates for at least 12 months.
- Ownership and Affiliations – List of all business owners and any affiliations.
- Resume(s) – For all owners and key management personnel.
- Lease Agreement – If renting a facility, provide a copy of the lease.
- Articles of Incorporation/Organization – Legal documents for business structure.
- Franchise Agreement – If applicable, include the franchise disclosure document.
- Collateral Documentation – Details of assets offered as collateral.
- Debt Schedule – List of all current business debts.
- Bank Statements – Personal and business bank statements (last 3-6 months).
- Lenders may request additional documents based on your specific situation.
Daycare Business Loan FAQs
1. What credit score do I need for a daycare business loan?
We prefer personal credit scores of 720 or higher. Strong business plans and industry experience can help offset lower credit scores.
2. How much can I borrow for a daycare franchise loan?
SBA 7a loans range from $100,000 to $5,000,000, while SBA 504 loan projects can reach $15 million or higher for qualified requests. Your borrowing capacity depends on your business’s financial strength and collateral availability.
3. Can I use SBA loans to buy an existing daycare business?
Yes, SBA loans can finance the purchase of existing daycare businesses, including both asset purchases and business acquisitions. The SBA requires detailed financial information about the target business.
4. Are home-based daycare businesses eligible for SBA loans?
Home-based daycare businesses may qualify for SBA financing, though loan amounts may be limited based on the business’s size and revenue potential. Lenders evaluate these applications based on licensing compliance and financial projections.
5. How long does SBA loan approval take for daycare businesses?
Approval timelines typically range from 30-90 days, depending on loan type and application completeness. Working with experienced SBA lenders can expedite the process significantly.
6. Can I refinance existing daycare business debt with SBA loans?
SBA loans can refinance existing business debt under certain circumstances, particularly when the refinancing provides improved terms or frees up working capital for business growth. They can not be used to refinance personal or non-business related debts.
7. What happens if my daycare business loan application is denied?
If denied, review the reasons provided and address any deficiencies before reapplying. Consider working with different lenders or exploring alternative financing options while improving your application.
8. Do I need daycare experience to qualify for SBA loans?
While industry experience is helpful, it’s not always required. Strong business plans, financial projections, and management team qualifications can compensate for limited direct experience.
9. Can SBA loans finance daycare franchise fees?
Yes, some SBA loans can cover franchise fees, initial training costs, and other franchise-related expenses. The franchise must be listed on the SBA’s Franchise Directory for eligibility.
10. What insurance is required for SBA-financed daycare businesses?
Lenders typically require comprehensive general liability, property insurance, and key person life insurance. Some may also require business interruption coverage.
11. How do seasonal fluctuations affect daycare business loan approval?
Lenders understand that daycare businesses may experience seasonal enrollment changes. Strong cash flow projections and working capital management plans help address these concerns.
12. Can I get an SBA loan for a daycare business without collateral?
While collateral strengthens loan applications, the SBA doesn’t decline loans solely due to insufficient collateral. Personal guarantees from owners with at least 20% ownership are typically required regardless of collateral availability. You can also get a cosigner in the business for the loan.
13. What role does licensing play in SBA loan approval?
Current licensing and compliance with state regulations are essential for approval. Lenders may require proof of licensing and evidence of ongoing compliance monitoring.
14. Can I use SBA loans for daycare business marketing expenses?
Yes, some SBA loans can finance marketing and advertising expenses, including website development, promotional materials, and community outreach programs.
15. How do I choose between SBA 7a and SBA 504 loans for my daycare business?
Choose SBA 7a loans for working capital, equipment purchases, and business acquisitions. Select SBA 504 loans for real estate purchases or substantial fixed asset investments exceeding $1 million.
16. What other resources do you offer?
We have dozens of epubs and calculators for SBA loans – Here are few:
- 7a Loan Calculator
- In-Depth 7a Loan Guide
- 504 Calculator
- In-Depth 504 Loan Guide
- How to Buy a Franchise ePub
- Franchise Calculator
First Bank of the Lake SBA Loan Case Studies
First Bank of the Lake has helped thousands of entrepreneurs achieve their business dreams through SBA financing. The case studies demonstrate successful partnerships across various industries, from moving services to franchise operations. Overall, we helped provide financing for more than 2000 businesses at over $1.9 billion.
Reed’s Moving & Storage secured a $3.3 million SBA 7a loan to purchase commercial property and expand their business operations. The transaction closed in under 30 days, demonstrating the efficiency of working with experienced SBA lenders.
Lifetime Green Coatings franchise obtained $400,000 in SBA 7a financing for franchise fees, equipment purchases, and working capital. This success story illustrates how SBA loans support franchise development across diverse industries.
These examples showcase the potential for daycare businesses to access similar financing solutions, whether purchasing existing facilities, investing in daycare franchise opportunities, or expanding current operations.

Take the Next Step Toward Your Daycare Business Goals
The childcare industry offers meaningful opportunities to serve your community while building a successful business. SBA loans provide the financial foundation necessary to launch or expand your daycare business with favorable terms and comprehensive funding options.
Whether you’re considering an independent daycare business or exploring daycare franchise opportunities, proper financing ensures you have the resources needed for success. From facility development to equipment purchases and working capital management, SBA loans support your entire business journey.
Ready to explore SBA financing for your daycare business? Contact First Bank of the Lake today to discuss your specific needs and learn how their expertise in SBA lending can help you achieve your childcare entrepreneurship goals. Their team of experienced professionals understands the unique requirements of daycare businesses and can guide you through the financing process efficiently.
Take action now and discover how SBA financing can transform your daycare business vision into reality.
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