The SBA 504 Loan Program offers childcare business owners an affordable financing solution to help expand their services. By utilizing an SBA 504 Loan, business owners can acquire, renovate, or even construct a new childcare facility with up to ninety percent financing. And with the recent passing of the Child Care for Every Community Act, now might be the perfect time for expansion.
SBA 504 Loan Program Overview
The SBA 504 loan program enables small business owners to secure funds for purchasing, renovating, or constructing commercial real estate, such as childcare facilities. Additionally, the program permits the use of funds to acquire equipment with a life span of ten years or more, a perfect perk for childcare facilities with an outdoor play area.
“Not all lenders finance childcare facilities. Or perhaps they do but they don’t come with the best terms,” explains Kurt Chambliss, executive vice president of TMC Financing.
“The 504 program is ideal for childcare facilities. And the most exciting part of the program is the opportunity for only 10 percent down payment,” continues Chambliss. “Business owners can save their precious capital for other business needs.”
In addition to low down payments, the 504 loan also comes with below-market interest rates, fixed for 25 years. With stable operating costs, business owners are able to plan for the future and budget for the long term. With .
of building equity in property that’s owned, including capturing financial benefits from property improvements. Additionally, with building ownership comes tax benefits.
What kinds of childcare businesses are eligible?
The SBA 504 loan program is designed to make it easier for small businesses to access financing for commercial real estate projects that may be difficult to fund solely through conventional lenders. These include, but aren’t limited to:
- Businesses in the early stages of growth: To be eligible, your childcare business should be in operation at least two years. This could be a home operation looking for a separate facility, or a business currently leasing space but wants to switch to ownership.
- Expanding childcare businesses: The SBA 504 loan program is ideal for businesses looking to expand their current operations. Safari Kid in Dublin, CA is an example that used the SBA 504 loan program for its $7.7 million new construction project:
The business owner financed the land purchase, construction costs, equipment and installation costs, and even construction contingencies into the total project cost. According to Chambliss, a ten percent down payment for a project of this depth is unheard of with conventional financing.
- Expansion of childcare franchises: The SBA 504 loan program can be used for childcare-franchise As Raji Sridhara – TMC Financing client and managing member of R&R Learning Center LLC – says, “After researching financing options, it was clear that the SBA 504 loan program was the best option for my business.”
- Refinancing existing real estate debt related to your childcare business: business owners can refinance to obtain the attractive terms of the 504 loan and/or to access cash trapped in real estate.
SBA 504 Loan Structure
The SBA 504 loan program has a unique structure. It is a partnership between a borrower, a conventional lender (a bank or credit union), and a non-profit certified development company (CDC), like TMC Financing.
- The business owner/borrower contributes 10-15 percent for the down payment, which is substantially less than conventional commercial loans require (typically 20-30 percent or more, although some conventional lenders often won’t consider financing childcare businesses at all).
- The CDC facilitates the SBA 504 financing, up to 40 percent of the project total (up to $5 million). This includes a below-market, fixed interest rate for the life of the loan.
- A conventional lender loans 50 percent (or more) of the total project cost. You can use your current commercial lender or TMC can help identify potential partnering lenders.
This shared structure is what enables the business owner to obtain such a low down payment while reducing the risk for banks lending to small businesses.
TMC Financing is the leader for SBA 504 financing
In 2022, TMC Financing secured financing for 17 childcare project loans, totaling $75,494,527. If your childcare business is in California, Arizona, Nevada, or Oregon, contact us today to learn about how we can help you. As educator Teresa Blea, owner of MIO Pre-School in California’s Bay Area, says about her SBA 504 loan through TMC Financing, “We don’t have to move because somebody’s selling our building or because of rent increases. We are a permanent part of the community now.”
Childcare entrepreneurs throughout TMC Financing’s service area agree that working with TMC was essential to their success.
As MIO Pre-School’s Blea says, “Working with TMC Financing has been amazing. Everyone is so helpful and patient. It was a long process, but it was seamless. The communication between everyone was great.”
Contact us to learn more. If your business is located outside of Arizona, California, Nevada or Oregon, try the SBA’s Lender Match tool to find a CDC near you.