SBA loans for child care centers

What the figures say about child care

Child care services (NAICS 624410) took 2,355 SBA 7(a) loans from FY2024 through June 2026, worth $1,878,852,200, from 368 lenders. Against the national figures, three things stand out: the loans are large, they are cheaper, and a large share of them finance new businesses.

The lower rate likely reflects the size. SBA caps variable 7(a) rates at the base rate plus 3% above $350,000, against plus 6% from $50,001 to $250,000, and the median child care loan is above that line. SBA Express, capped at $500,000 with a 50% guaranty, was only 20.4% of loans here; most centers borrow more than Express allows.

The building: why 504 matters here

The industry took 563 SBA 504 loans at a median of $1,025,000, nearly twice its 283 acquisition loans. A licensed center needs classrooms sized to the licensed capacity, a fenced outdoor play area, compliant restrooms and fire egress, and owners who can control that building often want to. 504 finances owner-occupied real estate, typically 50% from a bank, 40% from the CDC and 10% from the borrower. The borrower's share rises to 15% for a new business or special-purpose property, and 20% for both, so a start-up center in a building the lender treats as special-purpose can need a larger down payment. The borrower must occupy at least 51% of an existing building, or 60% of new construction. See SBA 7(a) vs 504 and 504 vs a conventional mortgage.

Lenders will ask what else the building could be. A center built to child care specifications may be hard to re-let to another use, and that affects the appraised value the lender relies on. A leased center avoids that question but raises another: the lease term must run long enough to support the loan, and the landlord's consent may be needed. See lease assignment in an acquisition.

Start-ups and franchises

A quarter of the industry's SBA loans went to start-ups, far more than in most service trades. SBA requires an equity injection of at least 10% of total project costs for a start-up, and the lender's question is who will run the center and how quickly it will fill. Expect to show:

• The director's and owner's experience running licensed care, on a resume that supports SBA Form 1919. See SBA Form 1919.
• The licensing path: the state's requirements for the site, the expected licensed capacity by age group, and the timetable to open.
• An enrollment ramp by month, with the staffing each stage requires. Staff-to-child ratios set by the state mean infant rooms cost far more to staff than preschool rooms, so the age mix drives the projections.
• Working capital to carry payroll and rent until enrollment covers them, built into the loan or held in cash.
• For a franchise, the franchise agreement and the brand's eligibility, which lenders confirm against SBA's franchise directory.

Franchises were 19.5% of loans. A franchised center brings a known building program and operating system, which lenders value, but the franchise fees and royalties come out of cash flow before debt service. See franchise resale financing for buying an existing franchised center.

What lenders underwrite in an operating center

SBA requires debt service coverage of at least 1.15x, and 1.0x globally once the owners' personal finances are included. From 1 October 2026 a change of ownership must show 1.25x on historical results. In child care the path to that coverage runs through a few numbers.

• Enrollment against licensed capacity. A center enrolled near its capacity has little room to grow but steady revenue; one well below it has upside the lender will not count. Monthly enrollment by classroom for at least the past year is the most useful document a center can supply.
• Payroll. Teachers are the main cost, and wage pressure and turnover move margins directly. Lenders compare payroll to tuition revenue over several years.
• Revenue mix. Private tuition, state child care subsidy and food program reimbursement pay on different schedules and carry different risks. A center that depends heavily on subsidy is exposed to changes in state rates and payment timing.
• Licensing and inspection history. The license is the business. Lenders read the inspection reports and ask about any violations, complaints or enforcement.
• Ownership form. SBA lends only to for-profit businesses. A nonprofit or church-run center cannot borrow under 7(a) or 504, even if it operates like its for-profit neighbors.

A center that can show monthly enrollment by classroom beside its payroll answers most of a lender's questions in one page.

Buying a child care center

Acquisitions were 12% of loans, above the national 10.4%, at a median of $761,600 and a median rate of 9.25%. Buying a center is buying its license, its staff and its families, and none of them transfer automatically. Many states require a new license or a licensing review on a change of ownership, so the buyer's timetable must allow for it; the director and lead teachers are the continuity that keeps enrollment.

SBA's change-of-ownership rules apply. The seller cannot stay as owner, officer or employee, but may consult for up to 12 months, or up to 24 months for loans under SOP 50 10 8.1 from 1 October 2026. A seller note counts toward half of the equity injection only on full standby for the life of the SBA loan. Where the amount financed, less appraised real estate and equipment, exceeds $250,000, SBA requires an independent business valuation, and from 1 October 2026 every change of ownership needs financial due diligence. See financing a daycare acquisition and buying a business with its real estate.

Preparing a child care file

SBA's standard list applies: business tax returns for 2–3 years, a P&L and balance sheet with a year-to-date P&L through last month-end, a debt schedule with copies of notes being refinanced, and personal tax returns and a personal financial statement for each owner of 20% or more, all of whom personally guarantee the loan. An acquisition adds the target's latest full year of figures, never an older year, and the letter of intent.

For child care, add the state license with its capacity, recent inspection reports, monthly enrollment by classroom, a staff roster with tenure and credentials, a breakdown of tuition, subsidy and food program revenue, and the lease or deed. A center carrying merchant cash advances should know that SBA will not refinance an active advance. See refinancing cash advances for daycares.

Transparent builds those documents into a full lender package — financing model, lender presentation, blind teaser and underwriting memo — in a day, and places it with the 278 lenders in its book that write SBA 7(a) and 504. On SBA loans the lender pays Transparent, not the borrower. See the package. For related care businesses, see child and youth services.