In general, the initial investment to open a daycare center is between $10,000 and $50,000+. If you take your time and put in the research, several government grants will provide most of the funding necessary for you to start your daycare. However, there are both pros and cons associated with accepting the financial backing federal grants can provide.
Some of the grants available to small business owners are the Community Facilities Grant Program, the Child and Adult Care Food Program, the U.S. Department of Commerce Minority Business Development Agency (MBDA), and the Small Business Innovation Research Program (SBIR).
Community Facilities Grant Program
First on the list of federal grants available to prospective daycare owners is the Community Facilities Grant Program. Per BizFluent, this program is available through the USDA’s Rural Development Program and the Department of Housing and Urban Development. All pertinent information regarding this grant, including the application process, can be found here. Community Grants Info states that this grant provides the funds necessary to develop “essential community facilities” in rural areas with a population of fewer than 20,000 residents. Fortunately, daycare centers are deemed essential community facilities.
According to the small business website Chron, this grant includes funding for purchasing land. The funding also extends to the construction, acquisition, or renovation of public facilities such as day-care centers. The Community Facilities Grant Program also assists daycare owners with purchasing equipment deemed as necessary operating equipment. The Community Facilities Grant may also be used in conjunction with funding such as loans or contributions and grants from other sources.
Perhaps the biggest pro of this grant is the help that it provides to the community where you are opening your child care center. Per Community Grants Info, a portion of the money this grant provides goes towards public safety and community services. Another plus to being awarded funds from this grant is that money can be used for equipment as well as related expenses. Not only will this grant provide funds for initial construction or repairs, but it will also cover annual recurring costs.
One of the most significant cons of the Community Facilities Grant is that approval for funding is priority-based. This means that areas in the most are considered a priority and approved before funding for a daycare center that is in less need. The population of the area in which you plan to open your daycare is also important, as these grants are not awarded to areas with a population of more than 20,000 people. Areas with less than 5,000 residents are given the highest priority when awarding funds.
Child and Adult Care Food Program
The Child and Adult Care Food Program are funded by the USDA Food and Nutrition Service. However, this grant is distributed on a state level. The Office of Child Care, an extension of the United States Department of Health and Human Services, states that the CACFP is backed by the Supplemental Nutritional Assistance Program (SNAP). With this grant, daycare centers are reimbursed for the snacks and “nutritional meals” they provide to children whose families do not have sufficient income.
Feeding 4.2 million children per day, this program aims to provide proper nutrition to those who need it most. Benefits.gov states that in-home or traditional daycare centers can be reimbursed for providing up to two meals per day to qualifying children and adults. Public or private nonprofit daycare centers, after-hours school programs, and licensed institutions that provide child care services are all eligible to participate in this program. You can obtain more information on this grant here.
One of the best aspects of this grant is the wide gamut of people who are covered by it. This grant will provide food to eligible children and adults who are enrolled at participating child care centers. Another upside to this grant is the satisfaction of knowing that you will be providing meals to some children who wouldn’t be provided adequate nutrition otherwise.
If you do not have sufficient startup capital, one major downside to the Child and Adult Care Food Program is that you must come out of pocket for initial food expenses. The grant will reimburse you after. Another potential downside to this grant is that it only reimburses you for two meals per day. If you are a daycare center that provides three meals per day, you will be required to cover the expense of that extra meal.
U.S. Department of Commerce Minority Business Development Agency (MBDA)
If you are a person of color seeking to open a daycare center, a grant from the MBDA may be exactly what you need to get started. The MBDA is a Washington, DC-based organization founded in1969 by President Richard Nixon. The purpose of this grant is to promote more minority-owned businesses in the United States. This organization offers several programs either to improve your existing business or to assist you in getting your business up and running.
To be considered as a qualified applicant, you must be “at least 51% owned and operated by an individual that is at least 25% African American, Asian, Hispanic, or Native American” per Fundbox. To receive funding, your daycare center must be certified by the Small Business Association. You can click here to see if your business will qualify for government certification as a small business.
Some of the benefits of being a minority-owned business are that you receive special tax incentives on both the State and Federal levels and access to special funding and contracts. The MBDA seeks to provide opportunities for those who might not have had one otherwise. The MBE Grant for Enterprising Women of Color is one example of a grant you can use to start your daycare if you are a woman of color.
As its name states, the Minority Business Development Agency’s mission is to assist minorities in achieving their dream of business ownership. While this is not a bad thing, it does mean that several criteria must be met to become a recipient of this grant.
The U.S. Small Business Innovation Research Program (SBIR)
If you have a creative mind and want to start a daycare that can revolutionize the daycare industry, the Small Business Innovation Research Program (SBIR) has grants available. To qualify for funding through the SBIR, you must first register your business on their website. You must also be classified as a Small Business Concern (SBC). An SBC must be at least 50% American-owned by at least one or more individuals who are permanent residents of the United States. There are several questions and answers listed here that can help you to determine if you are eligible for funding. You can start the application process here. You can contact the SBIR here if you need any assistance or have any questions.
This grant is awarded to businesses that are seen as impactful or revolutionary. The service you provide as daycare is impactful to you, your students, the parents of those students, and the community around you. Another qualification to receive funding from the SBIR is that you must prove that you meet a need in your area. Fortunately, child care is a necessary need worldwide.
Perhaps the biggest con to obtaining this grant is that the SBIR usually awards innovation grants. They are usually looking to award funds to people who have revolutionized an industry. Unfortunately, there’s nothing particularly revolutionary happening in child care. However, if you have an idea that you find particularly interesting or innovative, it doesn’t hurt to apply.
Though the prospect of applying for a government grant may be a bit time-consuming and scary, the satisfaction of opening your daycare center is well worth the time and effort you put into it. Being awarded one, if not a few, of these grants, can alleviate the huge burden of finances, as these grants can cover approximately 75% of the startup costs of opening your daycare, per BizFluent.
Learn more about grants HERE.
What types of loans are available to me if I want to open a daycare center?
There are several small business loans for which you can apply. According to the website Boefly, you can apply for a Small Business Association (SBA) loan. These loans usually have an interest rate between 4.25 and 8.75 percent. There are also asset-based and unsecured business lines of credit. Two other possible sources of funding for your daycare are seller-carry financing and merchant cash advances.
How much money does a typical child care center make?
Daycare Business Boss states that daycare centers profit $37,000 annually. Some daycare owners report annual profits exceeding $60,00. However, this is the high end of the spectrum. Other daycare center owners have reported annual profits below $20,000 at the low end of the spectrum. Many factors go into these figures. Some variables include workforce size, population density, location, and the type of center you own.
What type of licenses and certifications do I need to open a daycare center?
Per the website Daycare Business Boss, there are eight separate licenses and certifications needed to open a daycare. First, you are going to need a high school diploma or GED. Next, you need to be certified in first aid and CPR. You are also going to need a Food Handler certification. A General Business License and a Group Family Child Care License are also required to open a child care center. The last two things you need to operate your daycare are a Director’s License and a Health and Safety permit.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
To learn more on how to start your own daycare checkout my startup course and documents here.