Children’s Day Nursery Finance

Children’s day nurseries are potentially lucrative business ventures, provided you have the personal experience or management team required to run them successfully. To buy, build or grow a children’s nursery, you’ll need capital to fund the necessary work, recruit staff and manage day-to-day operations. 

Finance provides many different options for aspiring and existing nursery owners, with business loans, development finance and asset finance all potentially suitable for your project. However, your individual circumstances and business structure will impact your chances of success and influence what a lender may offer. 

Don’t risk a bad interest rate or unfavourable terms. Work with Rangewell and we’ll help you understand the lender’s market, identify the right provider for your needs and negotiate a deal on your behalf to help maximise the value of your loan. 

Overview of the nursery sector

Children’s day nurseries have been a stable source of growth for a number of years, bouncing back from the COVID-19 pandemic as parents began to leave remote work to return to the office. The sector attracts considerable investment from overseas buyers, with large corporate groups now buying successful UK nurseries to build out their existing brands. 

This all translates to a clear statement of fact: all quality, profitable childcare businesses are now in high demand. Whilst living costs have increased, parents show no signs of reluctance around childcare especially when the Government’s recent Budget announcement has promised free childcare for all working parents, which represents an enormous boon to nursery investors.

With the unveiling of the HM Treasury Budget for March 2023, the government has shone a promising light on the future of private children’s care, promising 30 hours of free childcare for all children over 9 months old, representing an increase of £204 million to be paid to nurseries.  

This care will be delivered in phases that are targeted for specific dates: 

• April 2024: 15 hours of free childcare for working parents of 2-year-olds
• September 2024: 15 hours of free childcare for working parents of 9 months - 3-year-olds.
• September 2025: 30 hours of free childcare for working parents with children over 9 months old. 

This package presents significant opportunities to nursery owners, who will now benefit from increased custom as more parents look to take advantage of the free childcare offer. However, this increased demand means that many nursery owners must now assess their capacity, premises and Ofsted ratings to ensure they’re both appealing to parents AND physically capable of handling increased demand. 

For existing and new owners alike, the answer to handling this rise in demand comes in the form of raising finance to expand your premises, invest in key equipment and recruit more staff. 

Let’s take a look at the options available to nurseries to determine which are best for you. 

Lending considerations for nurseries

When a bank or independent lender decides to finance a business, they have a set of criteria which is used to determine your offer. These criteria, in the case of nurseries and other forms of childcare, include: 

1. Size: What is the size of the nursery? How many places does it offer to children? 
2. Pricing structure: how is the nursery priced? Are fees paid per session or per day? What is the average fee you charge. 
3. Property status: Do you own the building (freehold) or not (leasehold)? Do you have an outstanding mortgage on it, pay rent etc? Is the building in good condition? What outdoor space does it have?
4. Occupancy levels: how many children are currently part of the nursery and what space do you have left to fill? 
5. Ofsted rating: what is your Ofsted rating history? Lenders may assess the most recent rating and past ratings too. 

Other criteria are more specific to your own circumstances. New owners, for example, will be assessed on their history as nursery managers. Those looking to convert or build new premises through development finance must show a positive ownership record. 

Each application is unique, but with Rangewell’s help, you can overcome a lender’s barriers and get the finance you need. Contact us now to get started, or read on to learn more about loans for children’s day nurseries. 

Finance to buy a nursery

Researching listings

Buying a nursery is a case of assessing the opportunity and looking at it through the same eyes as a lender – you should assess the building’s condition, its existing Ofsted rating, financial records, market and competitors. 

You should also consider whether you’ll be buying the freehold or leasehold, as this will determine the overall value of the investment. While a freehold represents greater value as you’ll own the land and not have to worry about lease lengths, the majority of nurseries are sold as leasehold so lenders will be accustomed to financing them. 

Buyer’s background

If you’re looking to buy a nursery, you’re either new to the industry or an existing owner looking to expand. Both backgrounds require a different approach, with specific considerations made by the lender. 

As a new owner, banks want to see evidence you’re able to operate a profitable nursery – so a background in childcare is essential. However, even the most qualified childcare manager will also need to show a capacity to repay the loan itself. You’ll need a strong financial team to support your application, creating a robust business plan and structured financial projections to help convince lenders. 

It’s also worth noting that moving from a manger to ownership role at the nursery you work at may be more successful than trying to buy a new premises to take over. Lenders are considerably more likely to finance you if it’s for the nursery you already work at, mainly due to the level of personal experience and relationships you’ll have built. 

If you’re an existing owner, your current nursery business will be the basis for your application. Lenders will look at your business’ past financial performance, your Ofsted rating and your occupancy to determine your affordability for a second nursery purchase. 

Depending on your application and circumstances, you’ll either get unsecured lending or have to offer a personal guarantee – where you allow lenders to secure the loan against a personal asset such as your home. 

These factors demonstrate the value of a team like Rangwell on your side. We can help you assess a sales listing to determine if it’s the right opportunity, build an application for finance around your personal circumstances and negotiate on your behalf. 

Finance to build a nursery

To build a new nursery, you’ll need development finance. Building a nursery from scratch is far less common than buying a different type of building and converting it under a Change of Use case. 

As with most conversion projects, lenders will want to assess your plans and financial projections to determine if the investment is worth it. Their lending decisions will be based on these, but also on your future business projections – so it’s important to prepare ahead of time and make the most of your application. 

One technique for securing lender interest is to demonstrate your marketing plan to attract parents ahead of completion. The more interest you can generate, the more leverage you have to demonstrate to the lender and give them confidence in the project. 

Some factors you should consider include:

• Your development project must account for the specific square footage requirements per child as dictated by Ofsted. 
• Ofsted also demands certain staffing ratios and that space within rooms will not impede those ratios. 
• Outdoor space and sensory gardens are important to nurseries – there should be a way to access the garden area from every room in the nursery. 

Development and conversion finance requires a specific approach. Not only must you demonstrate competency as a children’s nursery owner, but also as a project planner.

Visit our property development finance hub to learn how it works. 

Finance to grow a nursery

As an existing owner, growing your nursery requires investment. Depending on your situation, you may not have the capital to invest or be unwilling to deplete your reserves too considerably. Nursery business loans provide flexibility to allow you to grow, though your approach should be based on your goals for the nursery. Options include:

• Asset finance: this allows you to finance assets/equipment without risking your own capital. Asset finance sees a lender take charge over the asset itself, so if you fail to repay the loan they can sell it and recoup the costs. 
• Business loans: generic business loan products are incredibly flexible and will be offered based on the strength of your application and the specifics of each lender. Work with Rangewell to maximise your chances of securing a better loan. 
• Refinancing: switching from an existing loan product to a new one can unlock better rates, release equity or move from a difficult lender. 

Ultimately, your financing options should be based on your plans for the nursery itself. If, for example, you want to increase staffing and improve your Ofsted ratings, you may benefit from a cashflow loan that will allow you to recruit new employees and cover their initial salaries before they begin delivering a return on investment. Alternatively, you may want to borrow money against expensive equipment that you want to bring into the nursery – which means utilising asset finance. 

In some cases, refinancing is also a great way to reduce your monthly repayments or release equity that you can use to grow. If you’ve been repaying a loan for a number of years, we can help you broker a better deal either with your existing lender or by switching to a new one. You can also use refinancing to increase your borrowing amount, meaning you may be able to reduce your monthly repayments AND raise new cash to fuel growth. 

Achieve your children’s day nursery goals with Rangewell

Whether you’re a new owner looking to buy your first nursery or an experienced provider looking to build a nursery group, you’ll benefit from Rangewell’s help throughout your financing process. We work on your behalf, with no cost to you, to help facilitate communication with lenders and generate better loan offers. 

Harness the growing potential of this government-backed industry and get in touch with Rangewell today.