Daycare & Childcare Center Feasibility Study

Licensed capacity modeling, subsidy revenue analysis, and staff-ratio cost projections for SBA-financed childcare operations

Daycare and childcare centers are not on SBA's list of special purpose properties. The building is a standard commercial shell (open classrooms, restrooms, a kitchen and a fenced play area) that converts to offices, clinics or retail. That keeps the special purpose surcharge off the deal, but it does not make every daycare a 10% equity loan. On a 504 loan, an established center needs at least 10% from the borrower, while a center that has operated for two years or less needs 15% (13 CFR 120.910), which covers most new centers. Buying an existing center with a 7(a) loan requires at least 10% equity that cannot be reduced under SOP 50 10 8.1, in effect since October 1, 2026.

However, childcare is one of the most regulation-intensive industries in SBA lending. State licensing requirements dictate maximum capacity, minimum square footage per child, staff-to-child ratios by age group, outdoor play space requirements, and health/safety standards. These regulations directly determine the revenue ceiling and the labor cost floor, making them the two most important inputs in the feasibility study's financial model. A study that does not incorporate state-specific licensing rules will produce projections that are operationally impossible.

SBA Rules That Change a Daycare Loan File

These are the SBA rules a childcare study has to satisfy. The rules for buying an existing center changed under SOP 50 10 8.1, effective October 1, 2026.

Licensed Capacity Analysis by State Regulations

Licensed capacity is the hard ceiling on revenue. It is determined by state regulations based on the building's square footage, the age distribution of children enrolled, and the available outdoor play space. The feasibility study must calculate maximum capacity under the specific state's rules, not national averages.

These ranges vary significantly by state. Texas requires 30 square feet of indoor activity space per child and 80 square feet outdoors. California requires 35 square feet indoors for every child regardless of age, based on total licensed capacity, plus 75 square feet outdoors. New York, Florida, Georgia and Ohio require 35 square feet indoors. Infant ratios differ as well: 1:4 in Texas, 1:5 in Ohio and 1:6 in Georgia, so the same infant room carries a different payroll in each state. The feasibility study uses the specific state's requirements, not national ranges, to calculate both capacity and cost.

For a 5,000 SF building in a state requiring 35 SF per child, the theoretical maximum indoor capacity is approximately 143 children. But this theoretical maximum is never achievable. Hallways, kitchens, restrooms, storage, staff rooms, and reception consume 25% to 35% of the gross floor area. The usable classroom space is typically 65% to 75% of the gross building area, reducing practical capacity to 95 to 107 children. The feasibility study calculates the actual usable capacity based on the floor plan, not the theoretical maximum based on gross square footage.

Revenue Per Enrolled Child

Revenue per child varies dramatically by age group, and the age distribution of the enrollment directly determines total revenue. Infant care commands the highest tuition because it requires the most staff per child. School-age before/after care generates the lowest revenue per child but fills otherwise unused capacity during partial-day hours.

The feasibility study models enrollment by age group and projects revenue at the weighted average tuition rate. A center with 30% infant/toddler enrollment will generate substantially higher revenue per child than one with 60% preschool/pre-K, but the labor cost will also be substantially higher due to tighter ratios. The optimal enrollment mix maximizes the spread between revenue and ratio-driven labor cost, which varies by the local tuition market and wage environment. Public programs also compete for older children. California's transitional kindergarten now serves all four-year-olds, and New York City is expanding free 3-K and 2-K seats. The study checks public pre-K in the trade area before projecting preschool and pre-K enrollment.

Staff-to-Child Ratio Cost Modeling

Labor is the dominant expense in childcare. The federal Administration for Children and Families puts personnel at 70% to 80% of a center's total cost of care. The ratio requirement is the mechanism that drives this cost: a center with 20 infants at a 1:4 ratio needs 5 dedicated infant teachers, while the same 20 children at preschool age (1:10 ratio) need only 2 teachers.

The feasibility study calculates minimum staffing by classroom based on the state-mandated ratio, the proposed enrollment by age group, and the center's operating hours. We then add administrative staff (director, assistant director), floater/substitute staff (to cover breaks, absences, and transition periods), kitchen staff (if meals are prepared on-site), and maintenance. Total FTE count for a 100-child center typically runs 18 to 28 staff depending on age mix and state requirements.

The childcare labor crisis is the single biggest operational risk. Average childcare worker wages remain among the lowest in the economy (a median of $16.82 an hour for childcare workers in May 2025, according to the Bureau of Labor Statistics), yet the job requires specific qualifications (CDA credential, early childhood education coursework) and carries high emotional and physical demands. Federal research found that one in three centers loses more than 20% of its staff in a year. The feasibility study assesses the local labor supply: how many qualified early childhood educators are in the market, what are competing centers paying, and is the proposed wage structure sufficient to recruit and retain staff? A center that cannot maintain adequate staffing cannot maintain its licensed capacity, and revenue projections based on full enrollment become meaningless.

Waitlist Demand Quantification

One of the strongest demand indicators in childcare feasibility is the presence of waitlists at competing centers. Unlike most commercial property types where demand must be inferred from demographic data, childcare demand can often be directly observed through competitor waitlists.

We contact competing centers in the trade area to inquire about availability by age group. Centers reporting 3 to 12 month waitlists for infant and toddler care provide direct evidence of unmet demand. We document waitlist length, age groups affected, and the geographic distribution of families on the waitlists (some centers track zip codes). A trade area where 4 out of 5 centers report infant waitlists of 6+ months provides stronger demand evidence than any demographic model alone.

We supplement waitlist data with demographic demand modeling: the number of children under 5 in the trade area, the percentage of households with all parents in the workforce (68.0% of mothers with children under 6 were in the labor force in 2025, according to the Bureau of Labor Statistics), and the share of those families using center-based care versus alternatives (nannies, family daycare, relatives). This triangulation of waitlist evidence and demographic demand produces a defensible enrollment projection.

Subsidy and Voucher Revenue Streams

Government childcare subsidies represent a significant revenue stream for many centers, particularly those serving workforce housing communities or lower-income trade areas. The Child Care and Development Fund (CCDF) provides federal funding administered through state agencies, and each state sets its own reimbursement rates, eligibility criteria, and payment mechanisms.

The feasibility study models revenue by payor source: private-pay families, government subsidy/voucher families, and any contracted program slots (Head Start, state pre-K). Each source has a different rate, different payment timing, and different enrollment stability profile. A center projecting 100% private-pay enrollment in a trade area where 40% of families qualify for subsidies is either excluding a large segment of demand or misunderstanding its market. Federal subsidy policy shifted in 2026. A federal rule effective July 13, 2026 rescinded the 2024 requirements that states pay providers based on enrollment, pay in advance, and cap family co-payments at 7% of income; each state now decides whether to keep them. In January 2026, the federal government also froze nearly $2.4 billion in child care funds to California, Colorado, Illinois, Minnesota and New York before the freeze was blocked and withdrawn. A center with a large subsidized share is underwritten to its own state's current rules.

SBA Eligibility Considerations for Childcare

Not special purpose, but regulation-heavy. Because a daycare is not special purpose, 504 equity is 10% for an established center, rising to 15% for a center that has operated two years or less. But the regulatory burden creates compliance costs (licensing fees, inspections, mandatory training, background checks for all staff) that must be reflected in the operating expense model.

Startup risk is elevated. Childcare centers can take two to three years to reach mature enrollment, based on franchise disclosure data. Parents are cautious about new centers and rely heavily on reputation, referrals, and online reviews. A center that opens with 30 children and ramps to 80 over 12 months may operate below breakeven for the first 6 to 9 months. The SBA loan must include sufficient working capital to fund this ramp period, and the feasibility study must model the monthly cash flow trajectory through lease-up.

Licensing timeline. State licensing typically requires 3 to 6 months from application to approval, including facility inspection, staff background checks, health department review, and fire marshal sign-off. This timeline affects the project schedule and must be coordinated with the SBA loan closing. The feasibility study notes the licensing requirements and estimated timeline for the specific state.

Child care deserts. The term comes from research by the Center for American Progress, which defines a child care desert as an area with more than three young children for every licensed slot. It is not a federal designation. Some states direct grants or incentives to underserved areas, and the feasibility study measures licensed supply against the number of young children in the trade area and identifies any state program that applies.

Cost and Timeline

Daycare feasibility studies typically range from $4,900 to $10,000. Single-location centers in metro markets with well-documented competitor data and clear state licensing frameworks fall toward the lower end. Multi-site operators, centers in underserved rural markets requiring primary research, or projects with complex subsidy/partnership structures push toward the upper end.

Standard delivery runs 7 to 12 business days. Competitor waitlist verification (phone calls to competing centers) is the primary timeline driver. For detailed pricing across all property types, see our cost and timeline guide.