Financing & Refinancing
The amount of refinancing is up to 80% or 85% of the value of the real estate, plus 80% of the value of the business value!
For example: If the real estate appraisal is $2.5 million, and the business is valued at $1,000,000, then right now, a borrower could refinance up to $2,925,000 = ($2,500,000 x 85%) + ($1,000,000 x 80%)
Since many lenders just refinance based on the real estate value, and do not consider the business value, refinancing can happen much earlier, so the borrower can save money starting next month instead of waiting a few years.
- Loan Terms:
- Real estate: 20 year term and amortization
- Business: 7 year term and amortization
- $5 Million maximum refinancing amount
- Only for owner operators – not investors
- Borrower’s home not taken as collateral
- Requirements for refinancing:
- 3 years in business
- Good Liquidity – $300k is good
- Profitable – a 1.25 Global debt service coverage
- Positive trends in Enrollment
- Closing time from when Lender gets complete loan request:
- 3 to 4 weeks for refinancing when the loan is just based on the business value (i.e. no real estate) – no business valuation required
- 6 to 8 weeks for when there is real estate – business and real estate appraisal required
- Lender Origination fee: 0.5% of loan amount + closing fees ($5k to $10k)
How Much You Can Save By Refinancing Your Current Loan? Submit your information online if you are interested in refinancing an existing Childcare Center loan.
Complete an online application and submit it now.
Have questions on refinancing? Contact: JayWhitney@ChildcareBrokers.com 770-410-7582
During the last recession, the childcare center industry was hit hard and lots of childcare centers were closed down. Below is the number of SBA 7(a) loans to childcare businesses that were charged off by lenders. These charge-offs were from SBA 7(a) loans issued since 2000. The number of bank charge-offs for childcare center loans is down considerably from the peak in 2010.
|Year||# Charged off by Lenders|
Even though the childcare industry in general is doing well, there are still a number of bank foreclosures of childcare centers.
|Amount of loan||# Charged off by Lenders|
|$0 to $100k||870|
|$100k to $250k||215|
|$250k to $500k||142|
|$500k to $1m||132|
|$1m to $2m||68|
|$2m to $3m||1|
Most of the SBA 7(a) loans for childcare centers that have been charged off are the smaller ones.
November 3, 2017
Most childcare center owners can see that their childcare center is doing well and that the childcare industry is a growing industry. Industry growth demands capital and loans. The question is, “How much is the lending volume increasing to the childcare industry in relationship to previous years?”
The last few years were good years for the childcare industry in getting additional growth capital. The number of SBA 7(a) loans in 2017 was 55% higher than the number of loans in 2010.
|Childcare Centers financed each year with a SBA 7(a) loan.|
|Year||Growth in number of loans as % of 2010 number of loans||Average Loan Size|
The average loan size has increased substantially from $340k in 2010 to $850k in 2017. This indicates that larger childcare centers are being acquired or built. These loans also include loans for working capital, so it may also indicate that there are fewer small loans being requested for working capital.
October 27, 2017
In the last six years, on a national basis, there have been 5,477 SBA loans made to childcare centers. The interest rate that borrowers pay on a SBA 7(a) loan (the most common type SBA loan) is typically a variable interest rate based on the current Prime Rate (now 4.25%) plus a percentage that has a maximum of 2.75%. So currently, the maximum interest rate on a variable rate SBA 7(a) loan is 7.00%. The Prime Rate has increased in the last year by 0.75%.
About 36% of all SBA 7(a) loans are made at the maximum rate. The below chart shows the percentage of SBA 7(a) loans issued at various interest rate percentages over the Prime Interest Rate in the last six years:
|Percent of SBA 7(a) Loans Issued||Variable Interest Rate % Over the Prime Rate|
|4.2%||1.00% to 1.24%|
|3.1%||1.25% tp 1.49%|
|7.0%||1.50% tp 1.74%|
|6.8%||1.75% to 1.99%|
|13.5%||2.00% to 2.24%|
|13.4%||2.25% to 2.49%|
|13.0%||2.50% to 2.74%|
Over the last six years, about 62% of all childcare centers which received a SBA 7(a) loan, got one at a high interest rate (the Prime Rate plus 2.25% to 2.75%). About 18% of all childcare centers received a SBA 7(a) loan at under the Prime Rate plus 1.75%.
At today’s rates, refinancing a successful childcare center will typically reduce interest rates to a fixed rate of 4.5% to 5.5%.
By refinancing a $1.0 million outstanding loan balance, a childcare center paying a high rate can typically save $75k to $300k in interest expense over the remaining life of a loan, or reduce the monthly loan payments by $1,000 to $2,500 per month.
Nationwide, Childcare Brokers ONLY Finance Childcare Centers!