Revenue-Based Financing for Daycares and Child Care Centers
Revenue-based financing gives a child care center a lump sum repaid as a share of monthly revenue, so a month with open spots or a late subsidy payment means a smaller payment. It works best when the money funds growth that fills more spots, like a new classroom or an infant room. The total repayment is fixed up front.
Why a share fits child care growth
Enrollment fills over time
A new classroom opens with a few children and fills over months. A share of revenue starts small and grows as enrollment does.
Subsidy timing varies
When a state payment slips, revenue drops that month. A percentage adjusts instead of taking a fixed amount anyway.
A 7% share through a slow month
Take $80,000 of average revenue, $44,000 advanced and a $55,000 repayment cap. 7% of sales goes back each month.
| Month | Revenue | Remittance at 7% | Remittance as a share |
|---|---|---|---|
| An average month | $80,000 | $5,600 | 7.0% |
| A slow month, 14% under average | $68,800 | $4,820 | 7.0% |
A slow month sends just $4,820; at an average pace the total clears in about 10 months. With a 5-point yearly range in BLS employment for child care services (NAICS 624410), the slow month to test is the one on your statements.
Where centers use it
- Opening an infant or toddler room, which often has the longest waitlists.
- Adding a before- and after-school program.
- Outdoor play area upgrades that improve quality ratings.
- Marketing to fill open spots.
Terms to look at
What counts as revenue
Ask whether food program reimbursements, grants and registration fees are included. Excluding one-time grants keeps the share on regular revenue.
Reconciliation
If the funder debits an estimate and adjusts later, ask how often. Late subsidy payments shift revenue between months, so frequent reconciliation matters.
Minimum payments
Compare any floor with a month when a subsidy payment ran late.
When a line fits better
Late subsidy payments are a recurring gap, and a line of credit usually handles them for less. Revenue-based financing makes more sense for growth that brings new families and revenue to repay it.
Sizing the share to a center's margin
Child care runs on thin margins because ratios fix staffing. Pick a share small enough that, in a month when a subsidy payment slips and a few spots sit open, the center still covers teachers, rent and food. A lower share takes longer to clear but keeps the classroom running.
Quality ratings and grants
Upgrades that raise a center's state quality rating can lift subsidy rates in some programs. If the money funds that kind of upgrade, note it for the funder, since it's a real source of repayment.
Quick answers
Does revenue-based financing work for a daycare?
It can, especially for growth like opening an infant room or adding an after-school program. The payment is a share of revenue, so it rises as enrollment fills. Ask how grants, food program reimbursements and registration fees are counted.
What should a child care center use revenue-based financing for?
Growth that fills more spots, like a new infant or toddler room, an after-school program or play area upgrades. For late subsidy payments, a line of credit usually costs less, since interest runs only until the payment arrives.
How do late subsidy payments affect revenue-based financing?
With a true revenue share, the payment drops in the month the subsidy is late and rises when it arrives. If the funder reconciles monthly, the adjustment can lag. Ask about reconciliation timing and any minimum payment before signing.
More for daycares and child care centers
- Same-day merchant cash advance for daycares and child care centers
- Second position MCA for daycares and child care centers
- MCA consolidation for daycares and child care centers
- Business line of credit for daycares and child care centers
- How funders read daycares and child care centers
- Revenue-based financing: how it works
Run your own numbers with the factor rate calculator.
Want to see what fits a child care center like yours?
Tell us your slow months and your open advances, and we'll shop the file with funders whose programs fit. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.