Have you decided how you’re going to finance your home daycare? When starting a home daycare there is no true fixed amount as to home much its going to cost you, but be ready to spend any where from $1000 to $5000 to set up shop. I believer start up cost for home daycares differ from owner to owner. What you may want to implement in your business, the next provider may not want to do the same.

If you don’t have enough money you can start by looking to other sources such as these:

Private Sources:
The most common private sources can range from your own funds, to family, and friends.

What are the advantages of investing your own money?

1. There are no finance charges

2. Your search for additional funds is minimized.

What are the disadvantages of investing your own money?

1. You lose the interest you could be earning on your money

2. You lose your savings that could probably go towards any future emergencies.

Borrowing from family and friends can provide several advantages such as:

1. They are less likely to make demands on your style of management

2. There is no legal limit on how much you can borrow

3. The terms of borrowing can be negotiated and usually are more flexible than those of commercial sources.

The disadvantage of borrowing from family or friends is who not knowing what will happen if the money is not paid back on time properly.

Commercial Banks

I personally wouldn’t go this route you will see why later on. But nonetheless, if you have to start here than start.. When applying for money from a bank or individual investor, show a willingness to invest your own money. You must be willing to risk your assets if you expect others to risk theirs.

To find banks in your area look in the Yellow Pages. You can also request a referral from a trade association, management consultant, attorney, accountant, friend or relative.

Government Agencies

Government agencies offer individual financial assistance to small businesses. Many loan programs, administered under government guidelines and funded by the government, are available. There are plenty of programs out there to assist different businesses.

Keep in mind that getting help from government agencies will require about the same amount of work as going to a bank, you will still have to putt up collateral

For an up-to-date list of loan programs and their requirements, contact your local Small Business Administration (SBA) office (for information on federal loan programs) or your state economic development office (for information on state loans and grant programs).

Grant Programs

Grants are sums of money provided to businesses without a repayment obligation. Grants are generally reserved for research and development and nonprofit organizations; but many home daycares qualify for grant programs. There are private and government funding sources where you can apply for a grant. For most you will have to submit a written proposal to the agency, organization or foundation where you are applying for a grant.

If your proposal is rejected, find out why. Ask if how and if you can resubmit your proposal.

Other Sources

Credit unions and life insurance companies also can be a source of funds. Whatever financial institution you decide approach, show a willingness to risk your own money and have a business plan or proposal that is well written and well thought-out.

For more tips and advice on financing your home daycare please visit http://www.asapchildcare.com

Conventional financing, meaning traditional loans offered by a bank with their own money, for daycare centers typically consist of a 5 year fixed rate, with a 20 amortization schedules. Loan to values on purchases hover at approximately 65% (maybe 70%) and 60% on refinances. Most conventional sources are very conservative with daycares and want to see 2 years of tax returns that show a debt coverage ratios of 1.3 to 1.4 compared to an a 1.2 for most building types. The debt coverage ratio is basically a tool that shows/proves a level of cash flow. Management experience will be heavily scrutinized with conventional sources. One of the primary benefits of conventional financing is the rate will often be the lowest with this type of financing.

SBA loans are often the better way to finance daycare centers then conventional. First of all, borrowers can put down as little as 15% (85% loan to value) on purchases, compared to conventional financing at around 40% down. Debt coverage ratios are less conservative as well, and can go down to 1.1. In addition, future business projection can be used to improve historical financials if they fall below the guidelines. Also, because the SBA is guarantying so much of the loan for the bank there can be a lot of underwriting flexibility.

Many owners are unaware that they can use SBA loans to refinance their existing daycare center loan. Loan to values can go as high as 85% on refi’s when the SBA program is included. Borrower can pull cash out of their property for expansion, consolidate business debt, open another location, etc. Fixed rates on the SBA 7a loan are 5 years with amortization schedules of 25 years. 504 programs boast’s rates fixed for as long as 10 years.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He specializes in Commercial Real Estate Loans between $100,000 – $5,000,000. Offers unique loan programs such as Commercial Second Mortgages, Commercial 30 Year Fixed, 90% non SBA financing, Commercial Equity Loans. 248 885-8797 or commercial real estate loans or commercial loan brokers or commercial loan rates.