Daycare Feasibility Study for a Child Care Center: Demand, Ratios and Financing

A daycare feasibility study tells a lender whether one child care center, on one site and under one state's licensing rules, can enroll enough children at supportable prices to pay its teachers, its building and its debt at the coverage the capital source requires. It answers room by room, because a center's capacity, staffing and revenue are all set by the age of the children in each classroom.

Five facts shape almost every child care center loan file:

• Labor is the business. Payroll was 47.5% of receipts for child care employers in the 2022 Economic Census [6], and state ratios fix how many teachers each room needs [18][22][29].
• The pool of young children is shrinking in most places. The U.S. population under 5 fell 3.8% from the 2020 base to July 2025, and 2,058 of 3,144 counties had fewer children under 5 [1][2]. Yet 70.3% of children under 6 live with parents who are all in the labor force [4].
• Subsidy rules just changed. A federal rule effective July 13, 2026 rescinded the requirements that states cap family co-payments at 7% of income and pay providers prospectively and by enrollment [15].
• Many operators cannot use SBA. Non-profits held 19,164 of 82,162 child care establishments in 2023 [5], and SBA does not lend to non-profit businesses [8].
• Employers now carry more of the cost. For amounts paid or incurred after December 31, 2025, the employer-provided child care credit rose from 25% to 40% of qualified costs (50% for an eligible small business), capped at $500,000 a year ($600,000) [39][40].

For how an engagement is scoped, see child care center feasibility study consultant; for a worked example, see the Massachusetts child care center SBA 504 model study.

Every study ends in one of three conclusions: feasible as proposed; feasible with stated conditions, such as a different age mix or a larger reserve; or not feasible, with the changes that would make it work.

What is a daycare feasibility study?

It is an independent analysis, written for the lender's file, of whether a proposed or existing child care center can support its financing. USDA's rule defines a feasibility study as a report by an independent qualified consultant "evaluating the economic, market, technical, financial, and management feasibility of the proposed project or operation" [11]. Those five parts fit any capital source.

In federal statistics a center is NAICS 624410, Child Care Services [5][10]. The code spans businesses of every size: 29,830 employer establishments had fewer than five employees in 2023, and 537,849 businesses had no employees at all [5][7]. So the study first defines the product: licensed age groups, rooms by age, hours, days, the private pay and subsidy mix, food service, any Head Start or employer partnership, and any school-age program.

A feasibility study is not an appraisal: an appraisal estimates value at a date, while the study tests whether the center works. Where SBA treats the building as special purpose collateral, the appraiser must be experienced in the industry [8].

What does a lender need the study to prove?

It needs proof that the center's own cash flow will repay the loan under the program's rules, and that nothing about the borrower, the building or the license breaks them. SBA's regulation states the standard: "Loans must be so sound as to reasonably assure repayment" [9].

Exhibit 1. What the lender asks and what the study shows

Source: SBA SOP 50 10 8.1; 13 CFR Parts 120 and 121; 7 CFR Part 5001; U.S. Census Bureau; state licensing rules, as cited in each row.

For what separates a study a lender can rely on from one it cannot, see what makes a feasibility study bankable.

How large is the child care industry?

It is a $58 billion employer industry of about 80,000 establishments, with payroll near half of receipts: $27,731,511 thousand of $58,427,444 thousand in the 2022 Economic Census [6].

Exhibit 2. Child care services in federal statistics

Source: U.S. Census Bureau, 2022 Economic Census (EC2262BASIC), County Business Patterns 2023 (cbp23us) and Nonemployer Statistics 2024 (nonemp24us), NAICS 624410 except where noted.

Receipts averaged about $724,600 per employer establishment in 2022 [6]. The 537,849 businesses without employees averaged about $21,750 [7]; they compete for the same families on a very different cost base.

Exhibit 3. Child care establishments by legal form, 2023

Source: U.S. Census Bureau, County Business Patterns 2023, cbp23us, NAICS 624410, legal form of organization codes [5][35]. Shares and ratios calculated by FSC.

Legal form is a financing fact. Non-profits employed 30.3% of the industry's workers [5], and "Non-profit businesses are not eligible for SBA business loan assistance" [8]. A non-profit center looks to USDA, a conventional lender or a for-profit subsidiary.

Exhibit 4. Child care establishments by employment size, 2023

Source: U.S. Census Bureau, County Business Patterns 2023, cbp23us, NAICS 624410 [5]. Shares calculated by FSC; size classes sum to 82,162.

Of all employer establishments, 79.0% had fewer than 20 employees [5]. The calculator's default 156-child center needs about 32 full-time-equivalent teachers before support staff (a model result), so most local competitors will be smaller.

Where does enrollment demand come from?

It comes from young children in the trade area whose parents need care, weighed against the licensed slots already there. National data set the direction; tract and county data set the numbers.

Fewer children under 5 in most of the country

The Census Bureau estimates 18,491,867 children under 5 in July 2025, down from 19,226,271 in the April 2020 base: 10,987,446 aged 0 to 2 and 7,504,421 aged 3 and 4 [1]. Births run about 3.6 million a year: 3,620,461 in the year to June 30, 2025, against 3,680,380 in the year to June 2022 [3].

Exhibit 5. Children under 5 in the ten largest states, 2020 and 2025

Source: U.S. Census Bureau, Vintage 2025 population estimates, civilian population by single year of age (SC-EST2025-AGESEX-CIV), ages 0 to 4 summed [1]. Changes and shares calculated by FSC.

Texas gained 2.3% while California lost 10.8% [1]. A state trend can hide the opposite trend in a county, so the study works at county and tract level.

Exhibit 6. Counties by number of children under 5, 2025

Source: U.S. Census Bureau, Vintage 2025 county population estimates by age and sex (CC-EST2025-AGESEX), July 1, 2025 [2]. Classes and shares calculated by FSC.

In 2,058 of 3,144 counties, or 65.5%, the July 2025 count of children under 5 was below the 2020 base [2]. A falling count does not rule out a project, but the study must then show where its children come from: local growth, a shortage of slots or new housing.

Parents in the labor force turn children into demand

In 2025, 14,745,034 of 20,986,460 such children, or 70.3%, had all resident parents in the labor force [4]. Among children with two parents, both parents were in the labor force for 65.0%; among children living with a mother only, 77.0% had a mother in the labor force [4].

Exhibit 7. Children under 6 with all parents in the labor force, United States and the ten states in Exhibit 5, 2025

Source: U.S. Census Bureau, 2025 American Community Survey 1-year estimates, table B23008 [4]. Both parents in two-parent families plus the parent in one-parent families, divided by the total; calculated by FSC.

The share sizes the pool; it is not an enrollment forecast, since families also use relatives, home-based providers and public pre-kindergarten.

Which states are gaining or losing young children?

Most are losing them: in 41 of the 50 states and the District of Columbia, the July 2025 count of children under 5 was below the 2020 base [1]. Tennessee (+4.1%), North Carolina (+3.5%) and South Carolina (+3.0%) gained most; the District of Columbia (-12.6%) and Illinois (-11.2%) lost most [1]. The share of children under 6 whose parents all work or seek work ran from 58.9% in Utah to 79.3% in Massachusetts [4]. Exhibit 8 gives every state.

Exhibit 8. Children under 5, births and working parents by state

Source: U.S. Census Bureau, Vintage 2025 population estimates (SC-EST2025-AGESEX-CIV, ages 0 to 4 summed, and NST-EST2025-ALLDATA, births July 2024 to June 2025) [1][3]; 2025 American Community Survey 1-year estimates, table B23008 [4]. Changes and shares calculated by FSC; every state row of B23008 reconciles to its own totals.

A high labor force share with a falling child count, as in Minnesota, means competing for a shrinking pool; a rising count with a lower share, as in Texas or Idaho, means growth that may lean on relatives. The state row is a check; the trade area decides.

The child care desert method

A child care desert analysis compares children with licensed slots in the same area, in four steps:

1. Define the trade area by drive time from the site and by commute paths.
2. Count children under 5, and under 6 with working parents, by census tract, from the population estimates and the ACS [1][2][4].
3. Count licensed slots in every competing center and home from the state's licensing list, by age where the list allows.
4. Divide children by slots for each age group, and state the threshold the study uses as an assumption.

Infant and toddler slots are the costliest to staff [22], so supply by age can differ sharply from supply in total. For a worked example, see child care desert demand; the calculator below reports children per slot before and after the project.

What is the difference between licensed and effective capacity?

Licensed capacity is the number of children the license allows; effective capacity is the number the center can enroll and staff at a cost that works. Revenue follows effective capacity.

Licensed capacity per room is the lowest of three limits:

1. Space. Usable indoor floor area divided by the state's square feet per child, such as 35 in California, Georgia, Kentucky and South Carolina [26][29][28][32].
2. Group size. The maximum children in one group for that age, such as 12 for infants in Virginia [18].
3. The license. The state may license fewer children than space allows; Washington weighs square footage, staff qualifications and equipment, among other factors [23].

Effective capacity falls below licensed capacity in three ways. Rounding: a room licensed for 12 toddlers under a 1:5 ratio needs a third teacher for the last two children, so the plan may stop at 10. Age transitions: children move up on birthdays, so rooms rarely sit full at once. Turnover: families start and leave through the year.

Exhibit 9. Capacity and occupancy reported by one public operator

Source: KinderCare Learning Companies, Inc., annual report on Form 10-K for fiscal 2025 [34]. Capacity per center calculated by FSC. Cost of services excludes depreciation and impairment.

The operator defines occupancy as average weekly full-time enrollment divided by capacity, and says capacity "is determined by regulatory and operational parameters" [34]. It ran at about two-thirds of capacity, so a pro forma that runs a new center near its licensed number needs evidence. For how the gap plays out in one building, see licensed versus effective capacity.

What staff-to-child ratios and group sizes apply?

Each state sets them by age band, and they decide both capacity and payroll. Across the 12 states below, the youngest group runs from 1:4 to 1:6, with a 1:3 option in Washington, and four-year-olds run from 1:10 to 1:20 in the 11 states whose cited text sets a ratio for them [18] to [33].

Exhibit 10. Center staff-to-child ratios and maximum group sizes in 12 states

Source: state statutes, administrative codes and licensing agency publications as cited, read November 11, 2026. Group size is shown where the cited text sets one. Florida's statute lists ratios only; Georgia's group sizes do not apply to centers licensed for 18 or fewer; Kentucky's apply to Type I centers; Oregon's Table 3A applies to centers first certified after July 15, 2001.

Rules for Texas, Pennsylvania, Ohio, New York and Michigan could not be read from their official publishers on the research date and are not shown. The study reads the subject state's current rule, because rules change: Missouri's table was amended effective January 30, 2024 [31], and Georgia's rules are dated October 1, 2026 [29].

Three rules in the table change the model:

1. Mixed ages usually follow the youngest child. Virginia, Minnesota, Washington and Kentucky apply the youngest child's ratio to a mixed group [18][19][23][28]. Florida instead uses the age group with the most children once all are 2 or older [22].
2. The ladder is steep. In Florida one teacher may supervise 4 infants or 20 four-year-olds [22], so an infant seat uses five times the teacher time.
3. Bands differ by state. Minnesota's toddler band runs to 33 months [20]; Missouri treats birth to 36 months as one band unless a group holds only 2-year-olds [31]. A model built on one state's bands cannot be moved to another.

For how the age mix moves both revenue and payroll, see age mix and staff ratio.

What do 12 more states require?

The same pattern holds, with wider spread at the older ages. In the 12 states of Exhibit 11, the youngest group runs from 1:4 to 1:6, with a 1:3 option in Kansas, and four-year-olds run from 1:10 to 1:18 [43] to [54]. Taken with Exhibit 10, that covers 24 states.

Exhibit 11. Center staff-to-child ratios and maximum group sizes in 12 more states

Source: state statutes, administrative codes and licensing agency publications as cited, read November 12, 2026. Group size is shown where the cited text sets one; Alabama and South Dakota set group size by room capacity [50][51]. Idaho's ratio equivalents are 12 divided by the point value, calculated by FSC. Kansas allows one infant ratio per unit at a time [49]. Rhode Island's rule is the version effective July 7, 2026 [53].

Four lessons follow:

1. Points, not ratios, in Idaho. Twelve points allow six infants, nine two-year-olds or a blend [52].
2. Mixed ages are treated three ways. Illinois applies the youngest child's ratio and group size to a combined group [47]; Louisiana lets a center average ratios for children aged two to five but not younger [48]; Iowa lets a center combine three-, four- and five-year-olds at 1:12 [45].
3. Group size and rounding bind together. North Dakota's infant ratio is 1:4 but its maximum group is 10 [44], so a full infant room needs three teachers for 10 children, and the third teacher covers only two.
4. Older-age ratios decide the margin. One teacher may supervise 10 four-year-olds in Illinois or Rhode Island, 16 in Mississippi and 18 in Alabama [47][53][54][50].

The calculator below tests one building plan against those rules. For each age group it turns rooms, square feet, ratio, group size and weekly tuition into licensed capacity, effective capacity and teachers; it then applies occupancy, subsidy, food program reimbursement, payroll and fixed costs to test net operating income against debt service at a target coverage, and reports children per slot before and after the project. Defaults follow Virginia's ratios [18], with a Florida option [22], 35 square feet per child and a 1.15 coverage test [8]. Every input is illustrative; replace it with the subject's plan and evidence.

How should the study build revenue?

Room by room: enrolled children times the realized weekly price for each age, plus food program reimbursement and fees, with subsidy children priced at what the state pays. No federal series publishes center tuition by market, so price evidence is a dated survey of competing centers by age, checked against the state's own market rate survey where one is published.

Private pay

The survey records tuition by age, fees, discounts, hours, meals and waiting lists for each competitor, then places the subject on the local price ladder. Infant and toddler rooms cost the most to staff [22], so their prices must be highest for those rooms to carry their payroll.

What do state market rate surveys show about price?

They show that prices rise far less steeply by age than staffing does. CCDF rules require each state to set payment rates from a market rate survey or an alternative methodology [14], and some states publish the survey. Georgia's statewide data for licensed centers, from October 2023 administrative records, give a median weekly full-day rate of $189 for children under 1 and $160 for four-year-olds [58].

Exhibit 12. Weekly full-day rates at Georgia child care learning centers, October 2023

Source: Georgia Department of Early Care and Learning, Georgia Child Care Market Rates 2024, Appendix B, Statewide Market Rate Statistics, child care learning centers [58].

The infant median is only 18% above the four-year-old median [58], while Georgia's ratios let one teacher supervise 6 infants or 18 four-year-olds [29], three times the teacher time per infant. Payroll per child therefore triples from the four-year-old room to the infant room while the median price rises 18%, so the study tests the age mix as hard as the price: a center heavy in infants needs higher infant prices, subsidy rates that cover the gap, or preschool rooms that carry the infant rooms.

Subsidy

Federal child care subsidies for families flow through the Child Care and Development Fund (CCDF), which each state runs under federal rules in 45 CFR Part 98. Among other conditions, a child must be under 13 and live in a family with income no higher than 85% of the state median, and eligibility lasts at least 12 months between determinations [14]. States set payment rates from a market rate survey or an alternative methodology, such as a cost estimation model, done no earlier than two years before the state plan [14].

Exhibit 13. Federal CCDF rules that shape a center's subsidy revenue

Source: 45 CFR Part 98 (revised as of October 1, 2025) [14]; final rule, 91 FR 25796, effective July 13, 2026, as summarized in its abstract [15].

States may keep the rescinded practices, but they are no longer federal requirements [15]. For a center the difference is cash: if the state pays by attendance, an absent child is lost revenue; if it pays in arrears, the subsidy share becomes working capital. The study documents the state's current rates by age, co-payment rules and payment timing.

What do states pay for subsidized center care?

Each state publishes its own schedule, and the unit differs: Iowa pays by half-day, Louisiana and Kentucky by day [55][56][57].

Exhibit 14. State subsidy payment maximums for center care in three states

Source: Iowa Administrative Code 441, Chapter 170 (IAC 6/10/26) [55]; Louisiana Administrative Code, Title 28, Part CLXV (January 2026) [56]; 922 KAR 2:160 [57]. Kentucky's base maximums are set in the DCC-300 chart that the regulation incorporates, not in its text [57].

Iowa pays the provider's private rate up to the ceiling, halving the full-day rate when no half-day rate exists [55], and its ceilings rise with the quality rating, so the rating is a revenue input. Louisiana pays infant care at more than twice its regular-care rate [56], closer to the staffing ladder than Georgia's market prices.

The subsidy share can be large: one public operator drew 37% of fiscal 2025 revenue from families whose tuition was partly or fully paid by government agencies [34]. A center planning a high share should show the state rate for each age and how it covers the gap to its private price.

Food program reimbursement

The Child and Adult Care Food Program (CACFP) reimburses meals and snacks. For July 2026 through June 2027, the center rates rose 3.54%, tracking the Consumer Price Index for food away from home [16].

Exhibit 15. CACFP reimbursement for child care centers, July 1, 2026 to June 30, 2027

Source: USDA, Child and Adult Care Food Program national average payment rates, 91 FR 46894 [16]. Rates exclude the value of USDA Foods; Guam, Hawaii, Puerto Rico and the Virgin Islands have their own rates.

A center may claim no more than two meals and one snack, or one meal and two snacks, per child per day [17]. In the contiguous states a breakfast, lunch and snack sum to $8.60 at the free rates and $0.99 at the paid rates [16], so reimbursement follows the families' income mix. A for-profit center cannot claim in a month when fewer than 25% of the children in care (enrolled or licensed capacity, whichever is less) were eligible for free or reduced-price meals or were Title XX beneficiaries [17].

How do Head Start and Early Head Start partnerships affect a center?

They can fill seats with federally funded children, but they bring federal standards and, where Head Start money touches the building, federal claims on it. Grantees operate under 45 CFR Part 1302 and may count hours of service that meet the federal standards, "regardless of the source of funding," as planned class operations [37]. That rule lets a grantee blend its funds with a partner center's subsidy and private pay.

A child is generally eligible when family income is at or below the poverty line, and a program may enroll an additional 35% of participants from families below 130% of the poverty line who meet no other criterion, under conditions [37]. Early Head Start must provide 1,380 annual hours of planned class operations [37]. Head Start preschool must provide 1,020 annual hours over at least eight months for at least 45% of its center-based funded enrollment [37]. A full-year partner center meets the hours easily; its rooms must also meet the federal limits.

Exhibit 16. Head Start and Early Head Start class and group size limits

Source: 45 CFR Part 1302, Head Start Program Performance Standards (revised as of October 1, 2025) [37]. Where state or local licensing is more stringent, the program must meet the stricter rule [37].

The Early Head Start limit matters most: two teachers for eight children is 1:4 with a group of eight, tighter than the infant groups in Virginia, Illinois or Louisiana [18][47][48], so a partner infant room built to the state maximum must shrink.

What changes when Head Start money touches the building?

The federal government takes an interest in the property, and the lender's rights shrink. Federal assistance to a grantee may not exceed 80% of approved program costs, and the grantee must contribute 20% as non-federal match [38]. If a grantee uses federal funds to buy, build or renovate a facility, it must record a notice of federal interest, and that interest "cannot be defeated" by failing to file one [38]. The grantee cannot mortgage or use the property as collateral without the responsible HHS official's written permission [38].

Exhibit 17. What a mortgage on a Head Start funded facility must contain

Source: 45 CFR 1303.49 (revised as of October 1, 2025) [38]. Only the responsible HHS official can subordinate the federal interest, in writing [38].

A grantee building or buying on land it does not own needs a lease of at least 30 years, or 15 years for a major renovation or a modular unit [38]. So the study states whether any Head Start funds have been or will be used in the property.

What does staffing cost?

Staffing is the largest cost, and the ratios make most of it fixed once a room opens. Industry-wide, payroll was 47.5% of receipts in 2022 and averaged $29,695 per employee in 2023 [5][6].

Exhibit 18. Staffing cost anchors

Source: U.S. Census Bureau, County Business Patterns 2023, U.S. and state files [5][59], and 2022 Economic Census [6]. Ratios calculated by FSC. Local wages by role come from the study's own wage survey.

The study builds payroll from the room plan, not from a percentage:

1. Teachers on the floor. For each room, the teachers needed at planned enrollment under the state ratio.
2. Hours coverage. A center open 11 hours with 8-hour shifts needs about 1.4 teachers per position, before breaks and absences.
3. Support staff. Director, assistant director, cook, floaters and administrative staff. Some states set these by size: Kansas requires an assistant program director above 100 licensed children, and one with no conflicting duties above 160 [49].
4. Wages and benefits. Local wages by role, payroll taxes, benefits and any state minimum wage.
5. Check against the industry. Compare the payroll share of revenue with the Census ratio [6], and explain a large gap.

The downside case raises wages and states the price increase needed to absorb them.

How do child care payroll and supply differ by state?

Widely. In 2023 annual payroll per child care employee ran from $21,205 in Iowa to $37,322 in California, and $41,669 in the District of Columbia, against $29,695 nationally; the state rows sum to the national totals of 82,162 establishments and 1,045,052 employees [59][5]. It mixes full-time and part-time staff, so it checks the wage file rather than setting a wage.

Exhibit 19. Child care establishments, employees and payroll by state, 2023

Source: U.S. Census Bureau, County Business Patterns 2023, state file cbp23st, NAICS 624410, all legal forms [59]. Payroll per employee and employees per establishment calculated by FSC. Census flags most state employment and payroll cells for low or moderate noise infusion.

Employees per establishment show the competitive shape: Montana averaged 6.9 and Maine 7.8, against 16.9 in New Jersey and 17.4 in Connecticut [59]. A large center entering a market of small providers competes on hours, age range and program, not only on price.

Can employer-sponsored care and the 45F credit fund a center?

They can help, especially since 2026. Section 45F of the Internal Revenue Code gives an employer a credit for building or running a child care facility for its employees, or for buying care from a qualified facility [39]. Public Law 119-21, enacted July 4, 2025, raised the credit for amounts paid or incurred after December 31, 2025 [40].

Exhibit 20. The employer-provided child care credit before and after Public Law 119-21

Source: 26 U.S.C. 45F (United States Code, 2024 edition) [39]; Public Law 119-21, section 70401, 139 Stat. 212 to 213 [40].

Qualified expenditures include building or expanding depreciable property in the employer's qualified facility, its operating costs, and contracts with a qualified facility to care for employees' children [39]. The facility must be licensed, open to the employer's employees and not favor highly compensated employees [39]. Joint ownership now qualifies [40], which opens a consortium model: several employers fund one center.

The credit is recaptured if the facility stops operating as a qualified facility or changes ownership in its first ten years [39].

Exhibit 21. Recapture of the 45F credit on facility costs

Source: 26 U.S.C. 45F(d)(2) (United States Code, 2024 edition) [39]; section 70401 of Public Law 119-21 did not amend the recapture table [40].

For a lender, an employer sponsor changes two inputs: reserved, paid seats reduce ramp risk, so the study reads the contract term, seat count and termination rights; and the recapture schedule gives the employer a reason to keep the facility running through year ten [39].

Families gain too. From taxable years beginning after December 31, 2025, an employee may exclude up to $7,500 ($3,750 for a married individual filing separately) of employer dependent care assistance, up from $5,000 ($2,500) [40][41]. The child and dependent care credit now starts at 50% of qualifying expenses, falling to no less than 35%, and then to no less than 20% at higher incomes [40], against a 35% starting rate before [42]. Qualifying expenses remain capped at $3,000 for one child and $6,000 for two or more [42]. These lower the net price working parents pay.

What site and building standards apply?

Licensing sets minimum space per child indoors and outdoors, which caps capacity before any ratio applies. The study confirms them, then checks zoning, lead and occupancy rules.

Exhibit 22. Space per child in selected state rules

Source: state statutes and administrative codes as cited, read November 11, 2026. States define usable space differently: California and Georgia exclude bathrooms and halls [26][29], while South Carolina counts bathrooms [32].

Exhibit 23. Space per child in eight more states

Source: state statutes and administrative codes as cited, read November 12, 2026.

Infant space is where the rules diverge most. Rhode Island and Mississippi require 45 square feet per toddler [53][54], about 29% more than the 35-square-foot standard, so a toddler wing designed to 35 feet loses seats there. Nevada lets a center count all usable, measured classroom space if it keeps the ratios and group sizes [43].

Zoning. Some states limit what a town may require. Massachusetts bars any zoning ordinance from prohibiting, or requiring a special permit for, a child care facility, while allowing reasonable rules on bulk, height, setbacks and parking [36]. The study confirms the use, the approvals and the drop-off plan.

Outdoor play. The outdoor minimum can decide whether an urban or retail site works. Georgia lets centers rotate groups so that 100 square feet is available for each child outside at any time [29], and Iowa and Rhode Island size the play area for part of capacity [45][53].

Lead. SBA requires a lead risk assessment and testing for lead in drinking water at all taps for child-occupied facilities built before 1978, done within one year of the SBA loan number [8]. A day care center is a named example of a child-occupied facility [8].

Occupancy rules. For SBA financing of an existing building, the business must occupy at least 51% of the rentable space; for new construction, at least 60%, and it may permanently lease up to 20% [9]. A center planned as part of a larger building must fit those limits.

Deed restrictions. SBA generally objects to restrictions that limit a property's use for a third party's benefit, but notes that restrictions protecting occupants' health and safety, such as limits on use as a day care center, may be acceptable [8]. The title review comes early.

One public operator reported leasing approximately 1,600 centers [34]. Where the borrower leases, the study tests the lease term and renewals against the loan term.

Which financing paths fit a child care center?

Five paths cover most loans: SBA 7(a), SBA 504, USDA Business and Industry (B&I) guarantees, USDA Community Facilities (CF), and conventional bank loans. The borrower's legal form makes the first cut.

Exhibit 24. Financing paths compared

Source: SBA SOP 50 10 8.1 [8]; 13 CFR Part 120 (revised as of January 1, 2026) [9]; 7 CFR Part 5001 and Part 3570 (revised as of January 1, 2026) [11][12]; 7 CFR 1942.17 (revised as of January 1, 2025) [13].

SBA 7(a)

The 7(a) loan can finance a for-profit center's land, buildings, construction, fixed assets and working capital, up to $5,000,000 [9]. The size standard for child care is $9.5 million in receipts [10]. A start-up, operating one year or less, needs at least 10% equity, and projections must show coverage of 1.15 within two years of funding or of the end of construction [8]. A for-profit subsidiary of a non-profit can qualify, but not if the non-profit owns 20% or more and will not guarantee the loan [8].

SBA 504

The 504 loan pairs a bank first loan with a CDC loan; typically the borrower contributes 10%, the bank 50% and the 504 loan 40% [9]. Child care is not on SBA's limited or special purpose list, but the list "is not intended to be all-inclusive," and the CDC must address the question [8]. If treated as special purpose, the contribution is 15%, or 20% for a new business [8]. Each project must create or retain one job opportunity per $95,000 guaranteed by SBA, and coverage must be at least 1.15 [8]. The Massachusetts model study works through a 504 structure for a new center.

USDA Business and Industry

B&I guarantees reach rural for-profit and non-profit borrowers alike: any legal entity "organized and operated on a profit or nonprofit basis" may apply [11]. The project must be outside cities of more than 50,000 and their adjacent urbanized areas [11]. Equity is 10% for an existing business and 20% or 25% for a new one [11]. Above $1,000,000 to a new business, an independent feasibility study is required [11].

USDA Community Facilities

CF serves public bodies, non-profits with local ties and tribes, for essential facilities "operated on a nonprofit basis" in places of 20,000 people or less [12]. Grants may cover up to 75% of cost, with priority for the smallest and lowest-income communities [12]. Direct loans run up to the facility's useful life or 40 years, and the intermediate rate may not exceed 7% [13]. A CF guarantee needs a financial feasibility report [11]. A non-profit center in a small town, which SBA cannot finance, should test this path first.

When does USDA Community Facilities fit a child care center?

When a public body or local non-profit owns the center as a community service. An essential community facility is a public improvement, operated on a nonprofit basis, that serves a function customarily provided by local government and excludes private commercial undertakings unless they are a minor part [12]. It must primarily serve rural areas, with median household income below the higher of the poverty line or the eligible share of the state nonmetropolitan median [12]. A private center leasing from a non-profit does not become eligible by the lease.

Exhibit 25. USDA Community Facilities grant share by community size and income

Source: 7 CFR 3570.63(b) (revised as of January 1, 2026) [12]. The same part defines a rural area as 20,000 inhabitants or less [12].

Grant applications are scored. A community of 5,000 or less earns 30 priority points, and one between 5,001 and 12,000 earns 20; a median household income below 60% of the state nonmetropolitan median earns another 30 [12]. Health care and public safety projects earn 10 points each, and the State Director may add up to 15 [12]. Child care is not a named category, though a project consistent with the State Strategic Plan earns 10 points [12], so it competes mainly on population and income, which the study documents from Census data.

What SBA rules matter most for a child care loan?

Beyond eligibility and coverage, nine rules decide most child care files: who guarantees, who manages, which brands qualify, what the title may say and how the lender verifies the numbers.

Exhibit 26. SBA rules a child care study must address

Source: SBA SOP 50 10 8.1, effective October 1, 2026 [8]; 13 CFR 121.201 [10].

Two rows matter more for child care than for most assets. Centers are often run by a director while the owner works elsewhere, so the study shows who makes staffing, finance and enrollment decisions [8]; and many operators are single owners, which brings the 504 life insurance rule into play [8].

What changes when the borrower buys an existing center?

The license does not come with the building, and SBA's change of ownership rules take over. North Dakota, Nevada, Mississippi and Alabama each state that a center license is not transferable [44][43][54][50], so the buyer applies for its own license, and the study confirms the agency's process and timing before closing.

Exhibit 27. Checks for the purchase of an operating child care center

Source: SBA SOP 50 10 8.1, Appendix 15 (changes of ownership), Appendix 17 (7(a) maturities) and Section C [8]; state rules as cited.

In an acquisition the study restates the seller's earnings on the buyer's terms: enrollment by age from attendance records, the subsidy share and payment timing, staff at the buyer's wages, and capacity under the new license. If the seller is also the director, the plan replaces that role within the consulting period.

What must a daycare feasibility study contain?

1. A conclusion first: feasible, feasible with stated conditions, or not feasible, with the conditions or changes spelled out.
2. The project defined: licensed ages, rooms by age, hours, days, programs and food service.
3. Program fit: legal form, SBA size and eligibility, or USDA rural status and borrower type.
4. The trade area and demand by age: children under 5, births and the labor force share, by tract and county.
5. A supply survey of every licensed center and home, with capacity by age, prices and children per slot before and after the project.
6. Capacity room by room: space, group size, ratio, licensed capacity and effective capacity.
7. A price ladder by age from dated competitor evidence and the state's market rate survey, with the subsidy rate schedule and payment policy for the state.
8. An enrollment ramp by month and age group to stabilization.
9. Revenue: private pay, subsidy at state rates, CACFP after the eligibility test, Head Start or employer contracts, fees and discounts.
10. Payroll from the room plan, hours coverage and local wages, checked against Census ratios.
11. A development budget with sources and uses, contingency, working capital and a ramp reserve.
12. Site findings: licensing space, outdoor area, zoning, parking and drop-off, lead, deed restrictions and environmental status.
13. Coverage by month and year at the program's threshold, with downside cases for slower enrollment, lower subsidy rates and higher wages.
14. A management assessment: licensing history, director qualifications, oversight and staffing plan.
15. Every source and assumption listed, with model outputs labeled as such.

What documents should the borrower assemble?

The ones that let the study measure rooms, verify revenue and test eligibility.

Exhibit 28. Document checklist for a child care center study

Source: FSC document list; rules as cited in each row.

What does the engagement include, and what drives cost and timing?

Scope drives both: the number of age groups and programs, whether the center is new or operating, the capital source and its tests, and how complete the borrower's documents are when work starts. A new center with Head Start or employer contracts, or a purchase that needs a full earnings rebuild, takes more work than an existing center refinancing on its own history. The engagement runs in six steps:

1. Scoping: confirm the capital source, program, loan size, borrower type and the tests that apply.
2. Document intake: the items in Exhibit 28, starting with site and floor plans, licensing correspondence, the budget and, for an operating center, financials and enrollment by age.
3. Field and market research: site inspection, supply and price surveys, demand data.
4. Model: room by room and month by month, with base and downside cases, coverage and a reserve.
5. Review: the draft is checked against the lender's questions and revised only for new facts.
6. Final report: signed by Sarrah Allen, MAI, with written answers to the lender's follow-up questions. More about the practice is on the about page.

The deliverables are the signed report and conclusion, the room-by-room capacity schedule, demand and supply tables, the monthly model with downside cases, and the sources and assumptions.

Download the evidence behind this page's exhibits (CSV, 982 data points with sources)