Are you looking for a way to grow or revamp your daycare? This article covers:
- Why SBA loans could be the smart business move
- How to qualify for an SBA loan
- Signs you may want to consider an SBA loan for your daycare
If you enjoy watching children and find yourself opening or running a daycare, then you know there are a lot of considerations and details to work through along the way. Building a successful business in childcare means creating a safe, enriching environment, hiring and retaining qualified staff, meeting rising regulatory and compliance standards, and staying ahead of evolving market demands.
Whether you’re dreaming of expanding to a larger facility, upgrading your learning materials, or simply maintaining operational stability during uncertain times, having access to the right capital may make all the difference.
This quick guide reviews how SBA loans may be a strategic lever for daycare businesses. SBA loans for daycare centers may help:
- Fuel growth
- Enable upgrades
- Help you remain competitive in a crowded industry
Let’s explore what makes daycare operations unique when it comes to financing, and what you’ll need to prepare when applying.
What are SBA loans?
Small business loans are one way you can get the funding you need to expand. Backed by the U.S. Small Business Administration (SBA), these government-guaranteed loans offer more favorable terms compared to many conventional business loans. This includes:
- Lower interest rates
- Longer repayment periods
- Smaller down payments
For daycare operators, that translates into more flexibility to invest in facility improvements, classroom technology, staff training, expansion, and more — the things that truly matter.
What are the requirements to qualify for an SBA loan as a daycare center?
Qualifying for an SBA loan as a daycare business isn’t as complicated as many owners think, but it does require preparation and documentation. The SBA partners with lenders like SmartBiz to help small businesses access affordable funding. To get approved, you’ll need to show that your daycare meets general SBA eligibility standards and that your business is financially healthy enough to repay the loan.
1. Meet the SBA’s general eligibility criteria
All applicants for SBA loans (whether they’re running a daycare, a restaurant, a construction business, or anything else) must satisfy a few basic requirements.
Be a for-profit business: Nonprofits and community organizations don’t qualify for SBA financing. Your daycare must be a legally registered business entity such as an LLC, S corporation, or sole proprietorship.
Operate within the U.S. or its territories: Your daycare center must be physically located and operating in the United States.
Meet SBA size standards: The SBA defines “small business” based on industry, revenue, or number of employees. Most independently owned daycare centers easily fall within the small business range.
Demonstrate a need for financing: You’ll need to show that you’ve invested equity into the business and that the loan funds will be used for a valid business purpose. This could be remodeling your facility, purchasing equipment, or hiring additional teachers.
2. Show good credit and financial health
Because SBA loans for daycare centers are partially government-guaranteed, lenders still want to see strong financials and responsible credit use. Here’s what typically matters most:
Personal credit score: Most SBA lenders prefer a minimum credit score in the mid-to-high 600s. A higher score improves your approval odds and may help you secure better terms.
Business financial performance: Lenders review your revenue, cash flow, and profitability to ensure your daycare can handle monthly loan payments. Financial statements like profit and loss reports, tax returns, and balance sheets are key.
Reasonable debt-to-income ratio: Too much existing debt may signal risk. Lenders want to see that your current financial obligations are manageable before adding new ones.
3. Meet industry-specific requirements
Because daycare centers handle children’s welfare, the industry comes with added oversight. As such, some lenders may ask for additional requirements.
Valid state or local childcare licenses: Proof that your business complies with all childcare licensing and safety regulations.
Background checks for owners and staff: Many lenders verify that owners or key operators have a clean record, especially regarding financial or legal history.
Insurance coverage: Daycares often need liability insurance, property insurance, and sometimes bonding to operate legally. As such, financial lenders may require proof of coverage.
4. Demonstrate the ability to repay
Ultimately, SBA-approved lenders are looking for confidence that your daycare can manage its financial obligations while maintaining daily operations. You’ll need to provide:
A solid business plan: This should outline your daycare’s mission, enrollment strategy, competitive advantages, and how the loan funds will support growth.
Use of funds documentation: Whether you’re expanding to a second location or upgrading your facility, lenders will want to see a clear breakdown of how you’ll use the capital.
Collateral (sometimes): While many SBA loans are partially unsecured, lenders may request business assets, property, or equipment as collateral for larger amounts.
5 signs an SBA loan could be right for your business
You may already know that SBA loans offer favorable terms compared to many other small business financing options. But how do you or your client actually know when it’s the right time to consider one for a daycare center? Below are five key signs that taking on an SBA loan could be a smart, strategic move for your childcare business.
1. You’re struggling with cash flow fluctuations
Even a well-run daycare can experience lulls, like seasonal dips, enrollments shifting mid-year, or delayed tuition payments. A healthy business might still find itself short when payroll is due or when utilities and rent must be paid. Yet, profit and cash flow aren’t the same thing.
If you find yourself dipping into reserves or scrambling for short-term credit just to keep operations running, an SBA loan (or line of credit from SmartBiz’s network) can help you bridge those gaps without resorting to high-interest alternatives.
2. You want to expand or add services
One of the most common reasons small businesses take loans is to scale operations. Maybe you’re at capacity at your current location, you want to offer classes for older children, extend your hours, or you see demand in a new neighborhood. Growing your services often requires up-front investment in classrooms, additional staff, or facility modifications.
An SBA loan gives you access to capital with reasonable monthly payments so you can act when opportunity arises.
3. You need to upgrade or replace equipment
In a daycare setting, “equipment” isn’t just computers and printers. It includes playground equipment, learning materials, furniture, security systems, HVAC systems, and safety features.
Rather than paying cash or using expensive short-term credit, you may be able to use an SBA loan to spread those costs out over time. Our experts regularly cite equipment acquisition as a solid reason businesses turn to loans.
If your classrooms are feeling dated, or you're hearing from parents or staff that facilities are behind the times, an SBA loan may allow you to modernize without crippling cash flow.
4. You’re paying down high-interest debt
If your daycare business relies on credit cards, lines of credit, or multiple smaller loans to handle regular expenses, you might be paying very high interest just to survive.
An SBA loan at a lower rate may allow you to consolidate those debts and reduce your overall monthly burden. SmartBiz’s content gives real-world examples of business owners using SBA funds to refinance expensive obligations and dramatically lower their payment load.
By converting short-term, high-interest debt into one longer-term, manageable payment, you can free up cash to invest back into your people and programs.
5. You want to strengthen your financial position
Taking on an SBA loan and handling it responsibly may help build or improve business credit profiles, especially if your daycare is poised for future lending or expansion. One benefit of a loan is that timely payments can support credit building.
Having available credit, or having gone through a successful SBA borrowing process, helps increase confidence from stakeholders such as landlords, licensors, or local government bodies that you’re financially stable.
6. You see a strategic opportunity that requires immediate capital
Sometimes opportunities present themselves quickly. Perhaps a prime building becomes available in your area, or a competitor is closing and you can buy or lease their facility. In other cases, a vendor offers a bulk discount if you can pay up front.
If you have a strategic move in mind and lack the liquidity to seize it, an SBA loan may allow you to act decisively. SmartBiz frequently encourages business owners to take advantage of opportunities using capital rather than waiting.
How to get an SBA loan to buy or refinance your daycare building
Owning the building where your daycare operates is a smart long-term investment in your business’s future. When you own your property, you gain control over your space, stabilize your monthly costs, and build equity that can strengthen your overall financial position. Whether you’re looking to buy your first facility or refinance an existing mortgage, an SBA loan can make that possible with flexible terms and affordable payments.
1. Understand the SBA 7(a) loan program
For most daycare owners, the SBA 7(a) loan is the go-to choice for purchasing or refinancing commercial real estate. Backed by the U.S. Small Business Administration, the 7(a) program is designed to help small business owners access capital through approved lenders. Compared to traditional commercial loans, SBA 7(a) loans offer:
- Lower down payments (often as low as 10%)
- Longer repayment terms—up to 25 years for real estate
- Competitive, fixed or variable interest rates
- Easier qualification criteria, especially for business owners with limited collateral
Through SmartBiz’s streamlined loan application process, daycare owners are able to simplify what’s often a complex process.
2. Evaluate your readiness to buy or refinance
Before applying, take stock of your daycare’s financial situation. Lenders will want to see that your business is profitable, stable, and capable of handling the additional debt. You should be prepared to share:
- Three years of business and personal tax returns
- Business financial statements (profit and loss, balance sheet, and cash flow)
- Current lease details (if renting) and the terms of any existing property loans
- A business plan outlining your daycare’s growth strategy, enrollment trends, and financial projections
If you’re refinancing, gather information about your current loan — such as the remaining balance, interest rate, and payment schedule — to determine whether an SBA loan will meaningfully reduce your costs.
3. Confirm that the property qualifies
The SBA has specific requirements for real estate purchases. To qualify, your daycare business must:
- Occupy at least 51% of the property (you can lease out the remaining space if applicable)
- Use the property for business purposes, such as classrooms, offices, or outdoor play areas
- Purchase an owner-occupied property, as investment-only properties aren’t eligible
For refinances, the SBA typically requires that the existing loan was used to purchase or improve the same property, and that the new loan provides a clear financial benefit. This includes a lower interest rate, reduced payments, or longer terms.
4. Work with an experienced SBA lender
Navigating SBA loans can feel complex, but the right lender can simplify every step. SmartBiz specializes in small business lending, making it easier to match your daycare’s needs with the right funding solution. Our team helps guide you through eligibility checks, document collection, and the pre-qualification process. It’s all handled online and with less paperwork than a traditional bank.
Working with SmartBiz will also help you:
- Estimate how much you can afford to borrow
- Compare interest rate options
- Ensure your property appraises at a sufficient value
- Finalize terms that align with your long-term goals
5. Close the loan and invest in your future
Once approved, you’ll move through underwriting and closing. These are the steps where your lender verifies details and finalizes terms. After closing, your funds may be used to purchase, build, or refinance your daycare’s facility.
The result is lower monthly payments, ownership stability, and the ability to reinvest more of your revenue into what matters most, like your students, staff, and programming.
Can I use an SBA loan to open or expand my daycare center?
You may be able to use SBA loans (especially the 7(a) or 504 programs) to open, expand, renovate, or upgrade a daycare center.
SBA 7(a) — Flexible for multiple purposes
The 7(a) program is the most versatile SBA loan type. Among other things, you may use 7(a) funds to:
- Acquire, refinance, or improve real estate (including your daycare facility)
- Renovate, expand, or build out an existing facility
- Purchase and install equipment, furniture, fixtures, play and learning materials
- Provide working capital related to expansion (e.g. added staffing, utilities, licensing costs)
The maximum 7(a) loan amount is $5 million under standard terms. For real estate or facility purposes, you may often be able to get a 25-year amortization period, which helps keep monthly payments manageable.
However, while 7(a) is flexible, it’s also more oriented toward a mix of uses. If your primary goal is large-scale real estate or fixed-asset expansion, 504 may give you cost advantages.
SBA 504 — Ideal for real estate and major facility investments
The 504 loan program is designed specifically for long-term, fixed-asset financing. This includes land, buildings, construction, and large-scale renovations or expansions.
SBA 504 may be used for the purchase of property or buildings, retrofits and renovations, and expansions to adapt existing buildings to daycare use (e.g. modifying classrooms, safety features, utilities). You may also finance play equipment, classroom furniture, and other fixed assets as part of the overall project cost under 504.
Under the SBA’s guidelines, 504 loans typically finance up to $5 million (or in some cases as high as $5.5 million when meeting certain policy goals, e.g. in manufacturing or energy-related projects). The program has strict eligibility requirements and structure. For example, your business must occupy a majority of the building (at least 51%) for an existing property, or higher percentages if new construction is involved.
Another advantage is that 504 loans generally come with fixed interest rates and long repayment terms (10, 20, or even 25 years) for the real estate portion, which can provide predictability and lower interest cost over time.
How much can I borrow?
The amount you can borrow depends on the total project cost (land, construction or renovation, equipment, soft costs), your creditworthiness, your business’s cash flow, collateral, and how much “down payment” or equity you must contribute.
- For 7(a), the top cap is $5 million.
- For 504, typical maximums also tend to center around $5 million, with some flexibility under special policy goals.
- For large daycare expansion, especially when you're building or renovating extensively and purchasing equipment, combined 504 projects can be substantial—but you’ll need to cover soft costs, architectural fees, permits, utilities, etc.
- In many cases, you’ll be asked to contribute 10% equity (or more, depending on risk, status of the property, or special-use modifications) toward the project.
Can I get an SBA loan if I run my daycare from home?
It’s possible to qualify for an SBA loan if you operate a home-based daycare, but approval depends on how your business is structured and the purpose of the funds. The SBA doesn’t prohibit loans for home-based businesses, as long as your daycare is a legally registered, for-profit entity and you meet all local zoning, licensing, and insurance requirements. You’ll need to show that your business has steady revenue, a clear business plan, and sufficient cash flow to repay the loan. In this way, it is no different than what any other borrower would need to prove.
However, SBA loans typically can’t be used to finance or refinance a personal residence. That means you can’t use loan funds to buy or remodel your home itself. You can, though, use a 7(a) loan for eligible business expenses like purchasing equipment, adding outdoor play structures, or covering working capital. If your goal is to expand beyond your home and move into a commercial facility, an SBA 504 loan or 7(a) loan could help finance that transition.
Do you qualify? Work with SmartBiz Bank to look into daycare SBA loan options
For a daycare business that has proven fundamentals, manageable debt, and a strategic vision for growth or modernization, an SBA loan can be a powerful tool. If more than one of the signs in this blog resonates with you, it’s worth exploring whether your daycare is ready for an SBA-backed loan.
Working with an experienced SBA lender like SmartBiz can make the process smoother. SmartBiz specializes in helping small business owners navigate eligibility requirements and streamline applications, offering guidance on documentation, and pre-qualification.
With lower down payments, longer terms, and support from the SmartBiz team, you may be able to secure a loan that not only supports your daily operations but also helps your business grow for years to come.
Ready to learn more about SBA loans for daycare centers? Apply easily through our website to access financial solutions available to your business. With one fast and simple SBA loan application, you can see if you pre-qualify for up to $350,000.
