One of the most common surprises for preschool sellers is discovering how much the buyer’s financing situation affects their sale. You might assume that if someone wants to buy your school, they’ll figure out how to pay for it. But the reality is that the financing your buyer uses — and whether they can get approved — directly shapes your timeline, your sale price, and whether the deal closes at all.

How Most Childcare Acquisitions Are Financed

The large majority of preschool business acquisitions are financed through SBA (Small Business Administration) loans — specifically the SBA 7(a) and SBA 504 programs. These government-backed loans allow buyers to purchase businesses with as little as 10% down, making them accessible to more qualified buyers and expanding your buyer pool significantly.

Here’s how a typical SBA-financed childcare deal might look:

• Purchase price: $700,000
• Buyer’s down payment (10%): $70,000
• SBA loan amount: $630,000
• Loan term: 10 years (business-only) or up to 25 years (if real estate included)
• Approximate monthly payment at 8%: $7,650/month ($91,800/year)

From a buyer’s perspective, they need to demonstrate that your school generates enough cash flow (after debt service) to make loan payments and still provide a reasonable owner salary. Lenders typically want to see a Debt Service Coverage Ratio (DSCR) of at least 1.25 — meaning for every $1.00 in loan payments, the business generates $1.25 in cash flow.

What This Means for Your Valuation

This debt service math is one of the reasons childcare businesses typically sell at 2.5x–3.5x SDE rather than higher multiples. At those levels, a qualified buyer using SBA financing can usually make the numbers work. At 4x or 5x, the debt service often exceeds what the business generates, which limits your buyer pool to cash buyers — and cash buyers are rare and negotiate harder.

If your school has $180,000 in SDE and sells at a 3x multiple ($540,000), a buyer with 10% down ($54,000) takes out a $486,000 SBA loan. Monthly debt service at 8% over 10 years: roughly $5,900/month ($70,800/year). That leaves $109,200 of SDE after debt service — a solid return for the buyer. The deal is financeable, and you’ll see strong offers.

Price the same school at 4x ($720,000): monthly debt service jumps to about $7,800/month ($93,600/year), leaving only $86,400 after debt service. Many lenders would flag this as too tight, and buyers who understand the math will simply offer less or walk away.

Seller Financing: When It Makes Sense

Sometimes sellers are asked to carry a portion of the purchase price — typically 10–20% — as a seller note. This can work well when:

• The SBA won’t finance the full amount
• You want to maximize total price by making the deal more accessible to qualified buyers
• You’re comfortable receiving monthly payments over a few years

Seller financing is typically structured as a 5-year note at 5–7% interest. On a $70,000 seller note at 6%, that’s roughly $1,350/month in additional income to you after closing — while the new owner operates your school.

What Buyers Need to Get Approved

Understanding what lenders require helps you prepare your documentation effectively. SBA lenders evaluating a childcare acquisition want to see:

• Three years of business tax returns showing consistent or growing SDE
• Clean, well-documented P&L and bank statements
• A transferable lease with adequate remaining term (typically 5+ years including options)
• A valid state childcare license with no unresolved violations
• A transition plan showing the business can operate without the seller

What This Means for You

You don’t need to become a finance expert to sell your school. But understanding that your buyer’s ability to get a loan is directly connected to how your financials are presented is essential. Clean books, a solid lease, a current license, and a good transition plan aren’t just “nice to have” — they’re the factors lenders check before approving the loan that funds your sale. Working with a childcare-specialized agent means having someone who understands this equation and can help you present your business in the way lenders need to see it.