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About Loan for Day Care Centre

In today’s times, where both parents are employed and the support system is minimal, there is an increasing need for day care centres. Day care centres have emerged as one of the most profitable businesses, especially in urban cities. The cost of setting up a day care centre is quite significant. There is a need to either rent out or lease a property, buy required material, equipment, child proof the entire property, install cameras and safety equipment etc. Day care centre can be set up as a for profit or not-for-profit enterprise. Often, day care centres are preferred over hiring a nanny. Day care centres are more reliable given that they are run by professionals and adhere to certain safety standards. The skilled workforce ensures that the child remains engaged throughout their centre. Parents choose day care centre closer to their workplace to enable frequent visit during the working hours. Hence, location of day care is a pertinent consideration.

The day care business is highly sensitive and vulnerable to accidents which happen during working hours. There have been many cases where the centre had to be shut down due to lack of proper safety measures. In such cases, if the day care owner has borrowed funds from a financial institution, then one must pay off the loan in full. Often, the equipment may not suffice to close the outstanding loan in full. Given this risk and the limited clarity on revenues, many financial institutions do not offer such loans as a separate product. They can be often offered as personal loans or business loans. Most day care centres are run by women, hence, banks are awakening to the need for specialized loans which offer favorable terms. Bharatiya Mahila Bank offers day care centre loan called ‘Parvarish’. Day care centre are now synonymous with pre-schools, any day care centre operates as an extension to the pre-school which needs appropriate licensing and registration as per the relevant State Government Act.

Loan For Day Care Centre
Loan for Day Care Centre

Various means to finance the day care centre

There are multiple means to finance the day care centre, some of the most popular ways are –

  • Using existing savings to fund capital and revenue expenditure – this would mean that there is no burden of loan applicable
  • Borrow money from family and friends either for interest or for repayment of principal alone
  • Avail business loan or personal loan with collateral or without collateral (respectively) – repayable as per EMI schedule with interest at prevailing rates
  • Availing specialized loans under the Credit Guarantee Scheme (CGS) which is offered specifically to SME (Small and Medium Enterprises)

Loan for Day Care Centre

There are business loans offered by banks and NBFCs which can be allowed as unsecured loans. Funds are crucial for pre-school business, depending on the size and scale of pre-school, the owner can apply for the right loan. Banks are becoming aware of the requirement to empower women, there are specific plans under which loans are offered at attractive and favorable terms.

Bharatiya Mahila Bank offers special scheme for funding their day care centres. Punjab National Bank also extends specialized loans for women entrepreneurs. There are other banks such as Punjab & Sind Bank which offers specialized loans to women under their ‘Udyogini’ program.

Feature of Loan for Day Care Centre offered by Bharatiya Mahila Bank

The loan offered by Bharatiya Mahila Bank is called ‘Parvarish’. The loan’s key features are as mentioned below –

  • Assist women to establish child day care centre with required equipment
  • Collateral free – the loan is covered under CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)
  • Loan tenure up to 5 years
  • Eligibility age – 21 years to maximum of 55 years
  • 12% per annum rate of interest

Features of specialized loan offered by Punjab National Bank (PNB)

Punjab National Bank has a separate scheme which exclusively finances creches. This scheme’s objective is to provide support for women empowerment. Women who intend to establish creches or day care units are provided funds for setting up required equipment, the lending also helps the women entrepreneur to fund property purchase or property leasing. These loans have relatively lower interest rate and are offered with minimal or no collateral and third-party guarantee.

Banks typically fund the capital expenditure such as leasing cost of property, interiors and furniture or equipment related etc. Operational costs cannot be funded by these loans. The owner needs to fund revenue expenses such as rent, staff salary, maintenance, rentals, utility bill etc. from other sources.

What is Credit Guarantee Fund Trust for Micro and Small Enterprises?

For first generation entrepreneurs, borrowing with collateral is a tough challenge. To relieve them of this hassle, Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme (CGS). Under this scheme, the banks extended credit to first time entrepreneurs without collateral. This scheme has enabled strengthening of credit delivery system and has facilitated smooth flow of credit to the MSE sector.

Loans for day care center is covered under this scheme, the primary objective of this scheme is to ensure that the lender gives importance to the financial viability of the project and secure credit facility purely on the primary security of the assets financed. The maximum credit offered under this scheme is Rs. 200 Lakhs. The fund requirement for opening a day care would be much lower. The loan extended could be lower than Rs. 5 Lakh in most cases, the guarantee cover offered under this scheme for a loan of Rs. 5 Lakh would be 85% of the borrowing.

Registration and licenses applicable for day care centre

The pre-school and day care centres are governed by the State Government Law. The law that governs pre-school and day care are “Private School Education Acts”. The law specifies and regulates the operations of the day care centre. The owners of the day care centre are required to know the specifics of State Education Act and obtain the relevant registrations. If the day care centre and preschool is established for profit making purpose, it is advisable to incorporate a private limited company or a limited liability partnership. If the day care centre and pre-school is to be established as a non-profit making entity then a company can be registered under section 8 or a trust can be registered.

Documentation required for availing Loan for Day Care Centre

The documentation required is like that of a personal loan. Although the loans are either covered under the CGS or enough provisioning is made to reduce the risk factor, these loans still have a huge chance of default. The documents required are –

  • Identity proof, Address proof, income (if any) proof
  • Business plan explaining the market feasibility and financial viability with relevant cash flow and clarity of revenue stream
  • Filled in application with photograph
  • Relevant licenses from State Government and registration as required
  • Certificates to ascertain relevant qualification to deal with children (applicable especially if running a school)

Advantages of availing day care loan or specialized loan for women entrepreneurs

  • Specialized loans with favorable terms
  • Lower interest rate as compared to other loans such as personal loan or business loan
  • Loans without collateral or lower collateral requirement

Day care centres are normally run by women, hence the banks offer specialized loans for women entrepreneurs. These loans empower women to set up their own enterprise. These types of loans are offered at minimal interest rate. There is effort by Government to promote women entrepreneur, it is highly likely that in the future more such financial assistance with favorable terms will be offered to women who intend to set up day care centres. Day care centres are also key enablers for women to get back to work.

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