Child Care Center Feasibility Study in California

Many loans, but a light share

California approves a lot of child care loans and still under-weights the class. Its 798 approvals from FY2017 to FY2026, worth $722.7 million, place it 3 of 53 states, yet the location quotient is 0.63x: child care takes a smaller share of California SBA lending than it does of SBA lending nationwide, and the class stands 11 of 39 within the state. The direction of travel is up. Approvals rose from 45 in FY2017 to 137 in FY2025, when they carried $113.1 million, before settling at 84 in FY2026.

Median, cancellation and charge-off all stay inside our distinctness margin for California child care, compared with California's all-asset book and with child care nationally. The median loan, $532,000, is 1.18x the national child care median, close enough that national evidence on center lending applies here with modest adjustment. The middle half spans $213,500 to $1.2 million, a range that takes in a leased build-out at one end and a purpose-built center with land at the other.

Who lends, and through which program

SBA 7(a) accounts for 610 loans and SBA 504 for 188. The Mortgage Capital Development Corporation holds 60 of California's 504 child care loans today, worth $87.8 million, followed by Bay Area Employment Development Company with 23, and California Statewide Certified Development Corporation and Business Finance Capital with 21 each. Among 7(a) lenders, U.S. Bank, National Association holds 61 and Wells Fargo Bank National Association 43, while Live Oak Banking Company holds 30 loans worth $64.0 million, loans that run much larger than the banks' around it. Northeast Bank holds 21 worth only $3.3 million. Franchise operators account for 10.8%.

The outcome floors are low. California child care approvals in FY2017 through FY2024 lost at least 10.9% to cancellation, 12.5% at the ceiling. Of 279 California center loans disbursed in FY2017 through FY2021, 2.2% have been charged off so far and 1.1% inside five years. Both rates can still rise as the cohort ages.

Testing a California center

A feasibility study has to prove enrollment, because enrollment is the revenue. Demand should be measured as licensed capacity against families with young children in the drive area, in a file where Los Angeles, San Diego, Santa Clara, Alameda and Orange counties hold 172, 78, 74, 65 and 60 of the approvals. Cost must include the build-out and outdoor space that licensing requires. Debt service coverage should be tested at an enrollment ramp the operator can defend, with staffing ratios built in, and the appraisal has to recognise that a center is a special-use building with a narrow buyer pool. One limit applies to every figure here: the class cannot separate family child care homes from centers, since the code also holds in-home care, so home-based providers may sit inside these numbers and the low end of the range should be read with care.