While the daycare business industry in Canada has been declining at a growth rate of -1.3% from 2015 to 2020, it is still a $7 billion dollar industry with 41,270 daycares in Canada. According to the Survey on Early Learning and Child Care Arrangements (SELCCA), 60% of children between the ages of 0 to 5 attended some sort of child care, of which approximately a third of Canadians had a difficult time finding the proper child care arrangements. Given the importance of child care, running a daycare business can be fairly lucrative.
Whether you currently own or want to start a daycare, you’ll require capital to invest in the success of your business and create a daycare that is safe and fun for your children and profitable for you.
Daycare Expenses You Can Cover With a Business Loan
Your daycare’s financial health should be second only to the health of your clients’ children. With a business loan, you can rest assured that any of your daycare costs will be covered, including but not limited to:
Payroll
Running a daycare requires hiring and paying well educated, trustworthy staff members. You’ll also need to hire one or more caretakers to oversee, clean, and maintain the property. In addition, you’ll need to pay for labour and service costs like paying for a professional inspection of the property.
Check out our guide to help you set up payroll for your small business.
Insurance, Permits and Licenses
Depending on the business you own, you’ll be required to obtain certain permits and licenses. For daycares, you’ll need a Child Care License and Child Care Permit as well as other province-specific licenses/permits. In addition, it is mandatory to purchase business insurance to avoid any legal and liability issues. Usually, you are required to have liability insurance and business property insurance among others.
Training
While running a daycare, you may need to finance child care courses that are specific to your province such as CPR/emergency medical training, Childhood Development Worker/Assistant/Supervisor Certificates, and more.
Outdoor Play Area
Outfitting your daycare with the appropriate flooring/surfaces, electrical socket covers, emergency lighting/exits, security monitors, smoke detectors, fire alarms/sprinklers and other proper safety features is a necessity in this business. Moreover, you may need to buy indoor play areas with non-hazardous toys and bins, drawing boards, plastic furniture, sleeping cots as well as an outdoor play area with a secure fence/wall, jungle gym, sandbox, and playhouse.
Office Furniture and Equipment
In order to properly run your daycare, you’ll also need to set up a reception and office area. These areas typically require furniture and office equipment such as desks, seating areas for parents, computers, printers, fax machines, child healthcare forms, telephones, and other supplies.
Best Daycare Loan Providers
| Amount | APR | Term (months) | ||
 | 1k-300k | Fee-Based: Starting at 9% | 12- 60 | Learn more |
 | 5k-300k | 8% – 29% | 6-18 | Learn more |
 | 1k-500k | +5.9% | 3-60 | Learn more |
 | Up to 300k | 8%-22% | 6-12 | Learn more |
 | 5k-500k | - | 6-18 | Learn more |
 | 100K + | 6.05% + | 60 | Learn more |
 | 5K-100k | 15%+ | 12-18 | Learn more |
What Should I Look for When Applying for a Business Loan?
Who is Your Lender – When applying, researching your lender’s minimum requirements, reputation and experience in the daycare industry is a good way to ensure you qualify with a lender who can provide you with advice to better run your daycare facility.
What Interest Rate are You Being Charged – The interest rate has the biggest impact on your cost of borrowing. As such, when applying for a business loan, your goal should be to qualify for the lowest rate based on your financial state. Getting quotes and comparing rates is one of the key strategies for obtaining the best rate for you.
What Kind of Fees Are You Being Charged – When calculating the total cost of your loan, don’t forget to include the fees. Be sure to ask your lender about origination fees, administration fees, account maintenance fees, NSF fees and penalty fees for late-payments and prepayments.
Can You Afford This Loan – When borrowing, it’s important to determine how much you need and can afford. Borrowing more than what you need will lead to more interest and a higher- debt-to-income ratio.
Do the Payments Fit Your Monthly Budget – The terms of your business loan can be tricky. While longer terms lead to affordable monthly payments, it also leads to much higher borrowing costs. Depending on your business’s cash flow, opting for a longer-term may be beneficial to avoid cash flow shortages. However, a shorter term can lead to thousands of dollars saved.
Other Ways to Finance Your Daycare
Besides a business loan, there are many other alternative financing options available in Canada. Depending on what you’re looking to finance, one option will be better than the other.
Equipment Loan
Whether you’re looking to finance daycare equipment like a playhouse or office equipment like a computer or desk, an equipment loan can be a more affordable option. This form of credit is great for individuals with bad credit as the equipment you purchase is used as collateral. This makes equipment loans easier to qualify for than a business loan, that too at a lower rate. However, it’s important to note, that lenders often finance only up to 80% of the equipment price, as such, you’ll need to have enough funds to cover the other 20%.
Most business assets can be used to secure a loan. Check out what’s considered a business asset.
Business Line of Credit
As a daycare, slow seasons and emergency expenses can lead to cash flow shortages, which can make it difficult to pay your current expenses and employees. If you need cash quickly, a business line of credit is an accessible and versatile form of credit that you can withdraw from whenever you need, up to a certain credit limit. Moreover, interest is only paid on the amount you use, which makes it great for small daycare expenses.
Canadian Small Business Financing Program (CSBFP)
The (CSBFP) is a government-backed loan for small businesses looking to start or grow their business. The CSBFP allows borrowers to access up to 1 million dollars in funds, however, only $350,000 can be used to finance any equipment and leasehold improvements. A good business loan from the government can help your daycare facility with rent, hiring, training, and creating a fun and educational environment for the children.
Frequently Asked Questions
How do I choose the best loan to start my daycare business?
Can I use a business loan to cover my daycare insurance costs?
What do lenders look for when evaluating a daycare for a business loan?
Business Financing For Any Industry
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Succeeding With a Business Loan
As previously mentioned, daycares come with many ongoing costs that you’ll have to deal with to ensure it prospers the way you’d like. Moreover, there’s no telling what other expenses could come up in the near future. If you need funds for your daycare facility, apply for a business loan with Loans Canada to access:
- An online business loan application that can be filled out on your home or work computer, laptop, tablet, or smartphone.
- Payment rates and schedules that work well with the needs of your business.
- Short waiting times for approval
