Business funding for nurseries

A nursery borrows to add places, open another setting or buy one, and its lender judges it on occupancy, staffing and the income from government-funded hours. In England working parents of children from 9 months can claim 30 funded hours a week, so a large share of a nursery’s income comes from the local authority at a rate the authority sets. Buying a nursery through a new company needs a new Ofsted registration before it can open, and a lender will not release funds until that is in hand.

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Funded childcare in England, 2026 to 2027

30 hoursa week for working parents of children aged 9 months to 4 years

15 hoursa week for every 3 and 4 year old, and for 2 year olds in families receiving some types of support

570 hoursa year for each 15-hour entitlement, spread over 38 weeks

97%of each entitlement’s funding that a local authority must pass on to providers

Source: GOV.UK, Free childcare if you’re working; Early years entitlements: local authority funding operational guide 2026 to 2027.

What funded hours do to a nursery’s cash flow

Every funded hour is paid by the local authority at its own hourly rate for that age group, worked out from the national funding formula. The nursery cannot charge parents a top-up for the funded hours themselves, so its income for those hours is capped by the council’s rate. Extra hours a family chooses to pay for are charged at the nursery’s own prices, and meals and consumables can be charged as optional extras that parents may decline. A lender reads the split between funded and paid income, because the larger the funded share, the more the nursery depends on one council’s rate decisions.

Timing matters as much as the rate. Councils set out how and when they pay, and from October 2026 a local authority must pay any early years provider that asks for it monthly. Ask for monthly payment if you are paid termly now: it removes a gap that otherwise sits on an overdraft. A lender will want to see the council’s provider agreement and the payment dates in your forecast.

Staff are the largest cost, and ratios fix how many you need. The National Living Wage for workers aged 21 and over is £12.71 an hour from April 2026 and £13.21 from April 2027, and employer National Insurance is 15% on pay above £5,000 a year per employee. A lender will rework your forecast at next year’s rates against the council’s next funding rate.

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Expansion, buildings and VAT

Nurseries borrow to add places: a new room, a garden classroom, an extension, or converting a house next door. They borrow to open a second setting, and to buy an established nursery from an owner who is retiring. Where the nursery owns its building, a commercial mortgage or development finance pays for the work, secured on the property.

Childcare by a registered nursery is exempt from VAT as a welfare service. An exempt business generally cannot reclaim the VAT on its costs, so a building project or new equipment costs a nursery the full price including VAT, and the loan has to cover that.

Nurseries in England do not qualify for the lower retail, hospitality and leisure business rates multipliers, because they are not open to visiting members of the public. Check what your own council and nation offer, since Scotland, Wales and Northern Ireland set their own rates and reliefs.

Ofsted registration when a nursery changes hands

In England, a nursery caring for children in the early years registers with Ofsted on the Early Years Register. The registration belongs to the legal entity that runs the setting. If a new legal entity takes over, for example a different company buying the business and its assets, it must apply for its own registration and cannot legally begin operating until Ofsted approves it.

That is why the way you buy a nursery matters to a lender. Buying the shares of the company that holds the registration keeps the same registered provider in place. Buying the business and its assets into your own company needs a new registration, and the sale has to be timed so that the seller does not cancel its registration before yours is granted.

Scotland registers nurseries with the Care Inspectorate and funds 1,140 hours a year of early learning and childcare for 3 to 5 year olds. Wales registers them with Care Inspectorate Wales, and its Childcare Offer funds up to 30 hours a week of early education and childcare for eligible 3 and 4 year olds for up to 48 weeks. In Northern Ireland day nurseries are registered and inspected by the early years team of the local Health and Social Care Trust.

Buying the shares or buying the business

	Buying the company’s shares	Buying the business and assets
Ofsted registration	Stays with the company, which remains the registered provider	Your company applies for a new registration and cannot operate until it is approved
Staff	Stay employed by the same company	Transfer to you under the transfer of undertakings rules
Past liabilities	Stay in the company, so you rely on warranties and the seller’s disclosure	Stay with the seller unless you agree to take them
Council funding agreement	Continues with the same provider	Your company signs its own agreement with the local authority
How it is funded	Acquisition finance, with the lender taking security over the company you buy	Acquisition finance or a commercial mortgage if the building is part of the sale

Funding that fits a nursery

Commercial mortgage

A commercial mortgage buys the building a nursery trades from, or refinances it to release money for expansion.

Development finance

Development finance pays for an extension or a building alteration in stages as the building work is done, and is repaid from a mortgage or the nursery’s income.

Acquisition finance

Acquisition finance pays for buying another nursery, with the lender reading both settings’ occupancy, ratios and inspection reports.

Working capital

An overdraft or revolving facility covers the gap between paying staff and receiving the council’s payment.

What a lender reads in a nursery application

Have ready two or three years of accounts, current occupancy by room and age group, the split of income between funded hours and parent fees, the council provider agreement and its rates, staff numbers against ratios, your latest Ofsted report, and the lease or title. A lender reads a recent inspection judgement as a direct risk to occupancy. What lenders look at for a business loan.

If you sign a personal guarantee, your home stands behind the loan. What a personal guarantee means for a director. When you come to sell, Business Asset Disposal Relief taxes qualifying gains at 18% up to a lifetime limit that falls from £1 million to £500,000 for disposals on or after 6 April 2027. Selling your business.

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The monthly repayment on a business loan, the interest over the term and the total you repay with the arrangement fee.

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Questions people ask

Can I get a loan to buy a nursery?

Yes. Buying a nursery is funded with acquisition finance, and with a commercial mortgage where the building is included. The lender reads the setting’s occupancy, its funded-hours income, staffing and Ofsted report, and your own experience. If a new company buys the business and its assets, that company needs its own Ofsted registration before it can operate, so plan the timing with the seller and the lender.

How are nurseries paid for funded hours?

The local authority pays the nursery an hourly rate for each funded hour a child takes, set by the authority from the national funding formula. Authorities must pass on at least 97% of each entitlement’s funding to providers in 2026 to 2027. From October 2026 a local authority must pay any provider who asks for it monthly.

Do nurseries pay VAT?

Day care provided by a nursery that is registered with Ofsted or the equivalent regulator is exempt from VAT as a welfare service, so the nursery does not charge VAT on its fees. Because the supply is exempt, the nursery generally cannot reclaim the VAT it pays on its own costs, including building work and equipment. Budget for the full cost including VAT when you borrow.

Do nurseries get business rates relief?

Nurseries in England do not qualify for the lower retail, hospitality and leisure business rates multipliers that apply from 1 April 2026, because they are not open to visiting members of the public. Small business rate relief and local discretionary relief may still apply, so ask your council. Scotland, Wales and Northern Ireland have their own schemes.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Business funding for nurseries

Funded childcare in England, 2026 to 2027

What funded hours do to a nursery’s cash flow

Expansion, buildings and VAT

Ofsted registration when a nursery changes hands

Buying the shares or buying the business

Funding that fits a nursery

Commercial mortgage

Development finance

Acquisition finance

Working capital

What a lender reads in a nursery application

Business loan calculator

Questions people ask

Funding by sector

Acquisition finance

Development finance

Business funding for care homes

Commercial mortgages

Business funding for nurseries

Funded childcare in England, 2026 to 2027

What funded hours do to a nursery’s cash flow

Expansion, buildings and VAT

Ofsted registration when a nursery changes hands

Buying the shares or buying the business

Funding that fits a nursery

Commercial mortgage

Development finance

Acquisition finance

Working capital

What a lender reads in a nursery application

Business loan calculator

Questions people ask

Funding by sector

Acquisition finance

Development finance

Business funding for care homes

Commercial mortgages

Start a funding search

Cover for a personal guarantee