The childcare cash flow curve
Childcare is a business where most of the cost is fixed and most of it is people. Educator-to-child ratios set the staffing you need, rooms must be staffed whether every place is filled or not, and wages and super are paid every week. New centres feel this most. A centre can open fully staffed and compliant with only part of its places filled, and take many months to reach the occupancy that makes it profitable.
Income timing adds to it. A large part of fee revenue arrives through the Child Care Subsidy, paid on the government's cycle, while the gap fee comes from families. Any delay in processing, enrolment changes or system issues can leave a centre short for weeks. And when it comes to growing, buying an existing centre or a second site involves settlement deadlines that don't wait for a bank.
Common pressure points
- Opening costs and losses during the enrolment ramp-up
- Staff costs set by ratios rather than occupancy
- Subsidy payment timing and processing delays
- Upgrades required after an assessment and rating visit
- Playground, kitchen, fencing and building works
- Settlement deadlines when buying a centre
Childcare scenarios
| Situation | Loan purpose | Exit |
|---|---|---|
| New centre six months open, occupancy still building | Covers wages and running costs through the ramp-up | Refinance once occupancy supports a bank loan |
| Owner buying an existing centre with a fixed settlement date | Funds the purchase while bank finance is finalised | Bank refinance |
| Centre needs outdoor area and kitchen upgrades after an assessment | Funds the works quickly | Business cash flow |
| Operator with ATO arrears after a difficult year | Clears the ATO debt | Refinance or sale of an investment property |
| Owner selling one of two centres | Funds improvements at the other centre now | Proceeds from the centre sale |
| Subsidy payments delayed while systems are corrected | Keeps payroll and suppliers paid | Subsidy payments received |
These are illustrative examples, not claimed results.
Why banks are slow with childcare
Banks lending to childcare want occupancy history, years of financials, licence and rating details, a specialist valuation and often a lease review. A new centre without a trading history may simply not fit their criteria until occupancy is established, which is the exact period the owner most needs help. A bank refinance commonly takes up to three months or more, and you may not be approved for the amount you need.
Cash flow lenders struggle with a young centre's bank statements, which show heavy wages and modest income during the ramp-up. Their frequent repayments then compete with payroll.
How Equity Tap lends to childcare owners
We lend on the property, the purpose and the exit. The security can be the centre's freehold, your home, an investment property or another commercial property owned by you or a related party. We take a first mortgage, second mortgage or caveat.
We don't need tax returns, BAS, profit and loss, occupancy reports or bank statements to assess a property-secured loan, and we don't order a valuation before approval. You need ID, property and mortgage details, the purpose and evidence of the exit.
The structure suits a ramp-up. Interest for up to the first six months can be prepaid or added to the loan, so there are no scheduled payments while enrolments build. Interest is not waived, and you see the full cost before you proceed. When occupancy is where it needs to be, the bank refinance repays us. You only have the loan for as long as you need it.
Exits for childcare operators
- Bank refinance once occupancy and trading history are established
- Sale of a centre or of the freehold
- Subsidy and fee receipts as enrolments grow
- Sale of an investment property
Not sure your exit is strong enough? Our exit strategy guide walks through what we look for.
What we need and how it runs
To assess a childcare loan we need ID, the address of the security property, details of any existing mortgage, a short explanation of what the money is for and evidence of the exit, such as a bank's indicative offer, a sale contract or enrolment growth that supports a refinance. We don't need occupancy reports or financial statements to give you an answer.
Call us, or have your broker call. Conditional approval can often be given on the phone, with a term sheet in about 30 minutes once we have the scenario. There is no credit committee, so the person you speak to is often the person who decides. Eligible loans can settle in as little as 24 hours. We make sure you understand the loan, the costs and the exit before you proceed.
Broker note
Brokers often have a childcare client the bank will fund in a year but not today. A short-term loan from us can carry the centre through that gap and set up the bank deal. Send the scenario through our broker page for a fast indicative answer.
Also see franchise owners and business cash flow crisis. Apply online or call 1300 123 024.
Business-purpose lending only. Approval, timing and terms depend on the scenario.
Frequently asked questions
Can you lend to a new childcare centre without trading history?
Can the loan cover wages while enrolments build?
Do I need to show occupancy reports?
Can I use the centre freehold as security?
Will I have repayments during the ramp-up?
Can you help me buy an existing centre?
Brokers: send the scenario through the Equity Tap broker channel and you will deal with the same lending team.