Introduction
Securing finance for an early years nursery is not the same as funding many other types of businesses. Nurseries have unique challenges and opportunities that lenders take into account, from occupancy levels to staffing ratios and Ofsted outcomes. Understanding what makes nursery finance different will help you prepare a stronger application and increase your chances of approval.
1. Reliance on Government Funding
A large proportion of nursery income often comes from government-funded childcare hours.
- These rates can vary by local authority and sometimes don’t cover the full cost of delivery.
- Lenders will want to see how you balance funded hours with private, fee-paying childcare to keep the business sustainable.
2. Occupancy Rates Drive Lending Decisions
Occupancy is the single most important performance indicator for a nursery.
- Consistently high occupancy and waiting lists demonstrate strong demand and reassure lenders.
- Fluctuating or low occupancy may raise concerns about long-term viability.
- Unlike some sectors, there are no guaranteed revenue streams — parental choice and demographics play a big role.
3. Staffing Costs and Ratios
Staffing is both highly regulated and one of the largest ongoing expenses for nurseries.
- Legal ratios of staff-to-children must be maintained at all times, which affects payroll costs.
- Lenders will examine payroll against income to ensure staffing is affordable.
- High staff turnover or a lack of qualified staff can reduce confidence in the business’s stability.
4. Ofsted Ratings and Compliance
Regulatory inspections have a direct impact on both reputation and funding.
- A “Good” or “Outstanding” Ofsted rating will boost confidence among parents and lenders.
- A “Requires Improvement” rating can negatively affect valuation and finance approval.
- Strong compliance policies on safeguarding, health and safety, and EYFS standards are essential.
5. Property and Premises Considerations
The building itself is often central to a nursery’s value.
- Lenders will look at whether you own the freehold, leasehold, or operate under a rental agreement.
- Suitability of the premises — such as outdoor space, safety compliance, and accessibility — will all be factors in their assessment.
Conclusion
Funding an early years nursery business is unique because it depends on occupancy levels, government funding balances, staffing ratios, Ofsted ratings, and property suitability. To secure finance, nursery buyers and owners should focus on demonstrating consistent demand, strong compliance, and sustainable financial management.
