Developing a nursery, as opposed to purchasing an existing setting, is often considered to be a more attractive means of achieving expansion, as it allows the prospective owner to influence every element of the setting. However, financing such developments can be a challenging process, which places increasing importance on understanding how banks assess funding proposals of this nature.
From a lender's perspective, the key risk in development funding is the relative uncertainty around future trading performance, namely whether the new nursery will generate sufficient profits to repay any loans provided. When financing new developments, a lender does not have the luxury of being able to form a detailed view of forecast profitability based on historic financials and occupancy levels. Your application needs to provide the lender with the necessary comfort that the nursery will attract enough children to operate successfully.
As an example, try to share details of where the nursery is to be located, including its distance from any nearby urban areas and major transport links. Analysis of the local competition, including an overview of existing Ofsted outcomes and fees charged, is also a useful way of demonstrating a lack of good quality childcare in the area.
It also helps to research whether planning permission has recently been granted for any other nursery developments, which could add to the level of competition.
County Council data can also provide a useful indication of potential demand for your setting. As an example, local data could indicate a growing birth rate or a higher proportion of the population being of a working age, which in turn suggests a need for nursery provision over and above the total number of places already provided locally.
Another area of potential concern for your lender is the risk that the costs of the project will exceed initial estimates, which could put completion of the development in doubt. So, it is useful to explore whether a fixed price design-and-build contract can be entered into with your contractor. For larger developments, your lender may look to appoint a project monitor to see that the development is progressing on time and within budget.
