If you’re planning to open a nursery or expand your childcare business, you may be considering finance to help cover the costs. Setting up or acquiring a childcare business can involve a significant investment, so it’s worth exploring all your options.
Here, we’ll explain how childcare business loans work, the types of finance available, whether you can get a mortgage to set up a childcare business, which lenders to consider approaching, and how to improve your chances of success.
Can you get a mortgage to set up a childcare business?
Yes, it is possible to get a commercial mortgage or loan to set up a childcare business, but it can be more challenging than standard commercial borrowing. Childcare businesses are considered higher risk by some lenders because of the strict regulatory environment, staffing costs, and reliance on consistent occupancy levels.
That’s why lenders will want you to have a valuable asset for security for a loan and to see evidence of sector experience, a strong business plan, and a realistic financial forecast for your childcare enterprise before considering approving any funding.
What are your funding options?
There are two main routes, depending on whether you’re buying an existing nursery or starting a brand new childcare business.
Buying an existing childcare business
Your options would typically be as follows:
Commercial mortgage
These can be used to purchase the premises where the childcare business is based. Commercial mortgage lenders typically require a significant deposit, often 20% to 40%, and strong evidence of a viable childcare business.
Asset finance
If the business requires upgrades to play equipment, furniture, software, or vehicles, asset finance can help spread the cost over time. You can arrange various types of purchase plans or leasing agreements.
Business acquisition loan
Structured specifically to buy an existing business, sometimes known as M&A financing. It’s essentially a business loan in the form of debt finance, which can help fund a full or partial purchase of a childcare business by acquiring a percentage of its assets and shares.
Opening a new childcare business
You options for finance if you are starting a new childcare business would be the following:
Commercial mortgage for new premises
If you’re purchasing or developing new premises, a commercial mortgage may be possible, but lenders will scrutinise your past experience and business plan closely to ensure it’s a viable investment.
Working capital loan
This is a short- to medium-term loan that can help cover initial setup costs, such as licensing, recruitment, and marketing, until the business generates a steady income. They’re typically used to help fill any funding gaps while you get your childcare business off the ground.
Development finance
If you’re building a childcare business from the ground up, development finance could be suitable. If you’re developing a new build, refurbishing an existing building, or carrying out a conversion, development finance could help.
Start Up loan
Government-backed Start Up loans may be available for childcare businesses for smaller amounts (£500 to £25,000) with fixed interest rates. However, unlike a business loan, these are unsecured personal loans. It’s also worth getting an expert advisor to run you through any other available government-backed grants or loans.
Which lenders offer loans for childcare businesses?
Several UK commercial lenders and banks provide loans to support childcare businesses, though the criteria can vary widely. Most mainstream lenders may decline applications due to the perceived risks, while specialist lenders in the education and care sector may be more open.
Here are examples of a few UK lenders open to childcare business loans:
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OakNorth: You can potentially access business finance with OakNorth for childcare, nurseries, and education companies. However, business loans in this area tend to range between £1 million and £20 million.
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Triodos: You could borrow up to £20 million with Triodos, with repayment terms of up to 20 years. They provide a range of options for financing expansion (either constructing or purchasing new nursery sites), as well as refinancing existing borrowing. Typically, you can borrow up to 70% of the loan to security value.
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NatWest: Offer specific resources to support childcare businesses, such as a toolkit and grant finder. You need to have an extremely watertight business plan and projections for a loan. Still, NatWest is open to commercial funding, including business loans, property and asset finance, and alternative business funding.
What are the costs?
Typical interest rates for childcare business loans range from 5% to 15%, depending on loan size, deposit, term length, and the strength of your application. Commercial mortgage rates can sometimes be lower, particularly for established businesses with a strong track record.
Market rates can vary wildly based on wider economic factors, along with your business circumstances. If you’d like to explore today’s latest deals from lenders who finance nurseries and childcare businesses, you can make an enquiry below and one of our commercial finance specialists will draw up a list of every deal you qualify for.
Connect with a commercial mortgage specialist today
What requirements do you need to satisfy?
Lenders will assess your childcare business application in various ways, and there’ll be differences depending on the particular type of finance you need, but here are examples of some of the key criteria:
Experience in the sector
Many lenders prefer applicants with a proven track record in childcare, teaching, or running a similar business. A lack of experience can make it harder to access finance, but some niche lenders cater to first-time business owners.
Deposit or equity
Commercial lenders typically require higher deposits, ranging from 20% to 40%, depending on the loan type and perceived risk. A larger deposit reduces the risk for lenders and can lead to better rates.
Loan-to-value (LTV)
The loan-to-value (LTV) ratio required depends on what type of finance you take out. Typically, you’ll need a high-value asset to use as security if it’s a secured loan. This often means a first charge loan against a freehold property you’ll use for the childcare business premises.
Term length
Terms for commercial finance tend to be shorter than other types of mortgages. Most lenders consider term lengths of up to around 15 years, but some may extend to 20 years or even longer for a childcare business.
Business plan
A clear, detailed business plan is essential for your childcare company. This should include demand analysis for the local area, competitor research, regulatory compliance, and realistic financial projections.
Credit history
Strong personal and business credit histories help (depending on how your business is structured and whether it’s a limited company). Adverse credit doesn’t always rule out borrowing, but if you have bad credit, it may restrict your choice down to specialist bad credit lenders.
Financial stability
Evidence of savings, cash reserves, or secondary income streams will help support your application and demonstrate resilience against future challenges. Childcare is a highly demanded service, so you should be able to show evidence based on projections or previous performance.
Why choose Teito for your childcare business loan?
Getting funding for a childcare business can be complex, but with the right guidance, it’s absolutely possible. That’s where we come in.
Our commercial finance advisors have a strong track record of helping nursery owners, childminders, and other childcare providers secure finance tailored to their needs. Here’s why people across the UK trust us to arrange childcare business loans:
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Access to specialist commercial lenders with exclusive deals
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Free initial chat with an expert, with no obligation to proceed
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Our advisors are 5-star rated on leading review platforms
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Fast, tailored recommendations based on your childcare business goals
If you’d like to compare current commercial financing rates or speak with a childcare business loan specialist, you can get started here.
FAQs
Most lenders prefer applicants with prior experience in childcare or managing a related business. However, if you can demonstrate strong business skills and a solid plan, finance is still possible.