Buying a childcare centre property vs buying the childcare business: how is each financed?

The property is valued on its rent and lease, and the loan is sized on that value at the LVRs described elsewhere in this section. The borrower can be an individual, a company, a trust or an SMSF. Terms run to 25 years at commercial property rates, with principal and interest or interest only periods. If you are buying the freehold as a passive investor with an unrelated operator as tenant, this is a relatively standard commercial property deal.

The operating business has no bricks. Its value is the licence, the enrolments, the staff, the goodwill and the profit. Lenders finance business acquisitions against verified cash flow, usually two to three years of financials from the vendor, and lend 50 to 65 per cent of the purchase price over five to ten years. They will want a personal guarantee, a general security agreement over the business assets, and very often a mortgage over your home to make up the shortfall. Vendor finance for part of the price is common in this sector.

When an owner-operator sells the centre and the business as a package, lenders structure a combined facility. The freehold loan is sized on the property value, and the business loan covers the balance against cash flow. Because the property is the stronger security, buyers try to allocate as much of the price as the valuation supports to the freehold, and lenders will scrutinise that allocation. A specialist will run the split both ways before the contract is drawn.

The freehold, comfortably. Property has a valuation, a lease and a re-sale market. Business purchases depend on the buyer's experience in early learning, the quality of the vendor's books, and the strength of your own balance sheet. First-time operators buying a business without property are the hardest file in this sector.