Unfortunately, the answer to this question is one that many people learn the hard way. We can make it easier for you here. The amount of down payment required for your purchase of a childcare company or school is determined primarily by the following four factors:
1. Your credit score.
2. Your occupational background.
3. Whether or not you’re buying real estate with the business.
4. The lender you choose to make the loan.
In order…here we go.
Your credit score in this market needs to be 700 or better. In some cases, your score can be in the high 600s as long as there is a good reason for it, but ideally you and any partners need to have scores that will average out around 700 or more.
Next, your occupational background can be separated into four tiers.
a. Buyers that have owned at least one center for three years or more should anticipate a down payment of 10 to 15%.
b. Buyers that have three or more years of experience in the education industry but haven’t owned a center or school should expect a down payment of about 15%.
c. Buyers that do not have experience in the education vertical, but have a solid career in a child-related or education-related field such as pediatric nurse, child psychiatrist, dentist, child clothier…etc. should expect a down payment in the 15 to 20% range.
d. All other buyers should expect a down payment of 25%.
Third, if you’re buying a childcare company with real estate then your down payment amount will be lower than if you are buying a childcare company with no real estate. Your financing term will also be longer if real estate is included in your purchase. Assuming you’re using an SBA loan (most people do), your term will be a maximum of 10 years if you’re buying a company with no real estate, but the term can be as long as 25 years when real estate is included.
Fourth, the bank or lender you choose to make the loan can have a considerable impact on the cost of your loan. Costs include the amount of cash you have to use for a down payment as well as your interest rate, points on your loan, the amount time it takes the bank to close…etc. Bank requirements can vary materially. It’s always best to shop banks against each other so you can be assured of getting the best results. Remember, a quarter-point difference in interest rates means a lot of money to you over the term of your loan. Lastly, banks that have worked with and understand our industry are more likely to provide better terms for you.
While there are certainly other factors that will affect the approval of your loan, covering these four successfully will take you most of the distance.
I hope you find this information helpful. If you need more information related to financing your business acquisition, don’t hesitate to visit us at bfsinc.net or call us at 800-467-1774.
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