There’s money available if you’re looking to grow your childcare business, but you need to show lenders why they can feel confident giving you a loan, says ASC’s Henry Ejdelbaum…
I probably don’t have to tell you that nurseries are a booming business. In the last decade, childcare businesses have been on the up and up – a 2018 report stated that the market now is 50% larger than 10 years ago.
With a business boom comes expansion. At ASC Finance for Business we’ve certainly seen an increase in clients looking at expansion projects for their nursery.
Many of our clients want to know one thing off-hand: what do you need to get a loan? That’s perhaps a question with no right answer – the criteria will be different for every business. However, that doesn’t mean there aren’t commonalities among lenders.
The most important thing that lenders will want to see from any existing nursery is a solid plan about how you’ll use the finance. Unlike when you’re buying into a nursery, you’ve got very clear existing business experience to back you up – lenders can trust that you know what you’re doing.
However, they’re still going to want to be sure that you’ll spend the money wisely. Lenders aren’t just going to hand you a large sum to do what you want with – they’ll want to know what it’s for.
Whilst you’re unlikely to need to break down where every penny of finance will go, lenders will want to see a thought-out overview of your spending. They’ll want to know what the goal of the project is, and how you’re going to use finance they provide to realise it and ensure that you’re able to repay the loan.
The next big consideration is Ofsted. Lenders want to invest in successful projects. When there’s already a regulatory body that rates the quality of your nursery, of course lenders are going to use it.
A nursery with a ‘good’ or ‘outstanding’ rating presents a much better picture than ones which are ‘inadequate’ or ‘requires improvement’.
This can be tricky if you’re looking for finance with the aim of turning that rating around – you’ll need a solid plan and proven experience.
Lenders will want a sound strategy and evidence of success to ease their fears; but if you can prove that, you can find finance. It might be harder to find finance for a nursery without a good rating, but it’s certainly possible.
As mentioned, running a nursery gives you clear experience in the sector. However, running a successful nursery can be a different beast entirely.
Ofsted reports are great for showing a high quality of care, but they don’t really give an insight into financial viability.
As such, be prepared to open your books. Lenders will want to get a full insight into the financials behind your business to assess how much finance it would be feasible to offer.
Your performance figures, leasehold vs freehold (and the value thereof), your client base – you’ll need to give a fairly comprehensive overview of the business.
Lenders want to have confidence in your ability to repay the loan with your existing assets, rather than relying on the potential for increased business in future. The more prepared you are with detailed information about your business, the better impression you will make on lenders.
These three points aren’t the only things lenders may want to look at. When every loan is different, every process is too – every client will have different considerations. But whatever your process is, you always need one thing in our opinion: a broker. We’d love it if that were ASC, but no matter what, having an experienced, trusted broker on your side can only be a boon to your finance hunt.
Henry Ejdelbaum is MD of ASC Finance for Business. To find out more, visit asc.co.uk/business-type/finance-for-nurseries.