It is well publicised that the cost of childcare is difficult for many families, and that the cost of providing childcare is rising and many nurseries are struggling. With both sides feeling the pinch, many childcare nurseries are aiming to keep pricing competitive and affordable, while also meeting their costs, and for commercial nurseries making a profit. Commercial finance can be a valuable tool to help support a nursery to improve the setting and manage their outgoings while also being a viable option for families.
How Can Commercial Finance Help a Nursery?
As with any other organisation, a nursery is a business. A nursery provides the service of childcare for working parents, and their income is from fees charged, government funded places, and any local authority support that may be available. However, with the cost of employment rising, as well as energy hikes, increasing food and material prices, growing insurance, and professional fees oftentimes there is little surplus in the budget and for some settings even a negative balance sheet.
Parents are rightfully looking for the best possible nursery for their child, and as such a rundown building, lack of facilities, and investment can impact the ability for a nursery to attract new families. However, investing in improvements is costly and not necessarily viable based on income. Utilising commercial finance can help to support, develop, and grow a childcare nursery without serious negative financial consequences.
It should be noted that taking on any finance is a risk to the future of the business if it cannot be repaid. It is recommended that you seek the advice of an experienced broker, such as MC Commercial Finance. A broker can help to assess the needs of the childcare setting, explain the options that may be available, and source the best possible deal for the specific circumstances. Book an appointment, for advice and support on all your commercial finance requirements.
Types of Finance for the Childcare Industry
There are many different types of commercial finance. Some types will be more suitable than others depending on what the finance is for, the amount of borrowing, repayment period, and other factors; this is why we recommend seeking professional advice. For a nursery setting the primary types of finance that are likely to be suitable include:
- Business loan
- Merchant cash advance
- Property finance
Business Loan for Childcare Nurseries
A business loan is one of the most common types of commercial finance, and probably the best known about. A loan is a fixed sum of money, that is borrowed for a set period, with pre-determined repayments. This type of finance can be used for any business purpose; however, you may need to provide a comprehensive business plan covering what the money will be used for with growth forecasts, and how repayments will be affordable for the duration of the loan.
For a nursery that is looking to expand, renovate, add additional facilities, or replace unsafe or ageing equipment a business loan may be a suitable option. A loan can be used to purchase equipment, pay for services, or even utilised to pay for and train new staff, or upskill current employees. By providing new equipment, nicer surroundings, and more highly trained nursery staff a setting may be able to provide a better service, attract new families, and even increase fees in line with demand.
Merchant Cash Advance for Nurseries
A merchant cash advance (MCA) is a type of finance that is based on transactions via a card payment terminal. Whether this option is suitable will likely be dependent upon the primary demographic of the families that use the nursery. For a nursery that has a high number of children that are paid for via government funded hours, they may not have a card payment terminal or transactions are not enough to make an MCA a viable source of finance. Likewise, if parents primarily pay via bank transfer this may not be a suitable type of commercial finance.
Borrowing via a merchant cash advance usually limits the loan to approximately one month’s worth of income from the card payment terminal. Interest is at a fixed rate, and repayments are made directly via further income through the terminal. Usually, 10% of monthly income is taken until the loan plus interest and any fees are repaid in full. This avenue of repayment makes financial planning easy and avoids a large, fixed repayment in months where income is reduced.
Property Finance for the Childcare Industry
Whether for a new venture or an established nursery, for any business that owns their premises or wants to specifically develop a property for the purpose of childcare, property finance would be a suitable option. There are several different types of property finance, and speaking to an experience commercial finance broker is highly recommended. Types of finance available include:
- Commercial mortgage
- Bridging and development finance
Whether purchasing a property, re-mortgaging already owned business premises, or aiming to redevelop a building or land for nursery use, tailored property finance can help support business goals. You can find out more about property finance options here or seek advice directly from MC Commercial Finance.
MC Commercial Finance Ltd is authorised and regulated by the Financial Conduct Authority
(Reg number 948719).
MC Commercial Finance Ltd is an independent credit broker not a lender.
Company Registered Number: 12472873