Case Study · Illinois · Childcare & Daycare · SBA 7(a)
Childcare & Daycare Feasibility Study, Illinois — An SBA 7(a) Worked Case
This is how our independent feasibility study company and daycare feasibility consultant team analyzed a new-build, roughly 150-slot early-education center underwritten to an SBA 7(a) credit, from young-family trade-area demand and a childcare-desert supply gap through the staff-to-child ratios that set the labor bill and the debt-service coverage a lender must document. It is a representative, anonymized worked example of the methodology — not a specific client deal — set in a suburban submarket of a major Illinois metro.
A ground-up early-education center in an Illinois collar suburb.
A sponsor came to our feasibility study company with a ground-up childcare project and an SBA 7(a) lender that needed the projected cash flow independently tested before it would commit. The subject is a new, roughly 12,000-square-foot early-education center licensed for about 150 children, on a commercial pad in a fast-growing suburban submarket of a major Illinois metro. The program runs five age bands from infant to pre-K, each governed by a different state-mandated staff-to-child ratio, with a compliant fenced playground and a commercial kitchen.
Because a childcare center is a going-concern operating business rather than passive real estate, the lender's question is not “what is the building worth” but “can this specific license, in this specific trade area, enroll and staff the slots to service this specific loan.”5 Childcare is also an owner-operated, essential service and therefore a common and favored SBA use, which is exactly the profile that routes a ground-up deal here and makes an independent feasibility study the expected support for the credit.10 Our scope was the independent demand, enrollment-ramp, staffing-to-ratio, competition, and debt-service analysis behind that credit.
Representative and anonymized. Every figure below is illustrative of a typical engagement of this type; the site, submarket, and parties are composited, not a real named borrower, address, or completed transaction.
Young-family demand against a licensed supply gap.
The demand read starts with children and working parents, not a square-foot ratio. The three-mile trade area holds a young, dual-income household base, and roughly 46 percent of children under six nationally still live in a licensed childcare desert — a market defined as more than three children per licensed slot.
Demand in childcare is real but bounded, and the binding number is licensed capacity, not demographics alone. The suburban submarket carries strong young-family formation, dual-income households, and near-record prime-age female labor-force participation around 78 percent, all of which sustain structural demand for full-day care.3 Against that, the Center for American Progress read is that a large share of neighborhoods remain under-served on licensed slots, and a new, well-located center fills that gap rather than splitting a saturated trade area.3 But demand is only bankable to the extent the license, the ratios, and the tuition parents can actually pay allow it to be filled: the 2024 national average childcare price was about $13,128 a year, with center-based infant care near $14,760, so tuition is modeled against local ability-to-pay, not an aspirational rate.4
The center is modeled as private-pay, which lowers policy risk but raises the affordability test. We translate the license into revenue classroom-by-classroom: each age band carries its own state ratio, its own tuition, and its own fill rate, and infant rooms fill slowest. The table below is the licensed-capacity build the pro forma carries at stabilization — the lower of licensed capacity and what the center can staff to ratio, run at a defensible ~83 percent utilization rather than at licensed capacity from day one.
| Age band | State ratio | Licensed slots | Annual tuition | Enrolled at ~83% |
|---|---|---|---|---|
| Infant (6 wk–15 mo) | 1:4 | 24 | $24,440 | 20 |
| Toddler (15–24 mo) | 1:5 | 30 | $21,840 | 25 |
| Two-year-olds | 1:8 | 32 | $20,280 | 27 |
| Preschool (3–4) | 1:10 | 40 | $18,460 | 33 |
| Pre-K (4–5) | 1:10 | 24 | $17,420 | 20 |
| Total / blended | — | 150 | ~$20,300 blended | 125 (~83%) |
Ratios per Illinois DCFS day-care-center licensing standards; tuition by age set to the local private-pay market. At ~83% utilization the center enrolls ~125 of 150 licensed slots, supporting ~$2.54M of stabilized tuition. See sources 4 and 9. Figures are illustrative of the engagement type.
Waitlists at the incumbents, a gap the subject fills.
Five competing centers sit within three miles, but the independently surveyed set is running near-full with published waitlists, and unlike Illinois health care, childcare supply is not gated by a Certificate of Need — it is set by licensing, capital, and the ability to staff to ratio.
| Competitor | Format | Capacity | Distance | Read |
|---|---|---|---|---|
| Competitor A | National franchise | ~160 slots | 1.1 mi | Full; infant waitlist 9–12 mo |
| Competitor B | Regional chain | ~120 slots | 1.6 mi | Near-full; limited infant rooms |
| Competitor C | Independent | ~90 slots | 2.0 mi | Aging facility, no new capacity |
| Competitor D | Faith-affiliated | ~75 slots | 2.4 mi | Part-day skew; preschool only |
| Competitor E | Home-based cluster | ~40 slots | 2.7 mi | Fragmented; staffing-constrained |
Competitive set surveyed for the engagement; anonymized. Announced and permitted supply was scanned, not just the standing set, and licensing timelines were checked so the capture forecast is not overstated.
The pattern in the set is the sector's defining paradox: waitlists and thin margins in the same submarket. The two strongest competitors are full with multi-month infant waitlists, infant rooms are the scarcest capacity because they are the hardest to staff to a 1:4 ratio, and no incumbent is adding rooms. A rigorous study does not stop at the standing set: it scans announced and permitted supply and checks DCFS licensing timelines, because a competitor cannot open a room it cannot staff, and staffing shortages cap enrollment even where waitlists exist.6 The read here is a genuine, licensed supply gap — strongest in the infant and toddler bands — that a new, fully-staffed 150-slot center is positioned to fill rather than a saturated trade area it would merely split.
Illinois: two markets, and a property-tax overlay.
Illinois is functionally two states, and the collar suburbs behave nothing like downstate. Of the state's roughly 12.71 million residents, about three-quarters live in the Chicago–Naperville–Elgin metro of some 9.4 million, and that is where young-family demand concentrates.
Illinois posted its first population gain in a decade in the Census Vintage 2024 estimates, up about 67,899 to 12,710,158, but the growth is deeply uneven: 64 of 102 counties still lost population, so a defensible study is built to the specific collar-suburb submarket, not to a statewide number.12 The subject sits in the growing metro, where dual-income household formation and a licensed supply gap point the same direction for a new center. Critically for childcare supply, Illinois does not gate day-care centers through its Certificate of Need regime the way it gates hospitals and long-term care; the Health Facilities and Services Review Board reviews health facilities under 20 ILCS 3960, but childcare is licensed by DCFS, so supply is set by the market and the ability to staff to ratio, and the childcare desert — not a permit gate — is the demand signal.179
The offsetting reality is cost, and in Illinois that begins with property tax. The state carries the second-highest effective property-tax rate in the nation at about 2.07 percent, well above the national norm, and it is a first-order occupancy-cost variable a childcare pro forma must model rather than bury in a fixed percentage — a mispriced tax bill can flip an otherwise feasible center.13 Two features cut the other way for this sponsor: Illinois' expanding state pre-K investment validates early-education demand even as it adds publicly funded seats, and the SBA's combined 7(a)-plus-504 ceiling rose to $10 million in mid-2026, enlarging bankable deal size on the state's deep SBA channel.1612 Because the center is modeled private-pay, its exposure to subsidy-rate and funding-cliff risk is limited — a deliberate de-risking choice the study tests rather than assumes.
Why the submarket supports a 150-slot license.
Young-child counts, household income, and commuting patterns all point the same direction, and the site converts that demand into enrollable, staffable slots.
The three-mile trade area carries an above-average share of children under six and a median household income comfortably above the level at which full private-pay tuition is supportable — the affordability test that decides whether a center at this tuition can actually fill. Dual-income households on a suburban commute need full-day, full-year care near home or near the route to work, and the licensed supply gap in the infant and toddler bands is precisely where demand is least elastic.34
The site does the rest. A commercial pad with drop-off parking, commercial or institutional zoning, and room for a compliant fenced playground of 75 to 100 square feet per child is what converts a demand read into a license — and DCFS licensing, zoning, and buildout are the 6-to-18-month gate a study must schedule rather than wish away.14 A purpose-built 12,000-square-foot layout lets the operator open every age band, staff each room to its ratio, and capture the scarce infant and toddler demand the part-day and preschool-only incumbents cannot serve, which is why the model credits a defensible ~83 percent stabilized utilization rather than an incumbent's constrained one.
The SBA 7(a) structure.
Total project cost lands at $3.55 million. The 7(a) program can finance the owner-occupied real estate, the classroom buildout, equipment, and working-capital runway in a single loan, which is why an owner-operated, essential-service startup like this routes here.
| Cost component | Amount |
|---|---|
| Land (~1.2-acre pad) | $0.70M |
| Site work, playground & utilities | $0.45M |
| Building shell & core (12,000 sf) | $1.45M |
| Classroom fit-out, kitchen & FF&E | $0.55M |
| Soft costs, A&E, licensing & contingency | $0.25M |
| Working capital, reserves & fees | $0.15M |
| Total project cost | $3.55M |
All-in cost near $296/sf sits within the ~$200–$550/sf ground-up childcare range; playground sized to 75–100 sf per child. See source 14.
| Item | Figure |
|---|---|
| SBA 7(a) loan (90%) | $3.20M |
| Borrower equity injection (10%) | $0.35M |
| Term / amortization | 10-year term / 25-year amortization |
| Illustrative rate | ~10.25% (Prime + 2.75%) |
| Interest-only ramp bridge (Year 1) | ≈ $328k |
| Annual debt service (amortizing) | ≈ $355k |
Structure per SBA 7(a) conventions under SOP 50 10 8; owner-occupancy 60% for new construction; 10% equity injection for a startup. See sources 10 and 12.
The 10 percent equity injection is the SBA startup minimum, and childcare qualifies for the 10 percent rather than a special-purpose escalation precisely because it is a favored, owner-operated, essential-service use.10 On a 25-year amortization at an illustrative 10.25 percent (Prime plus 2.75), fully amortizing annual debt service is about $355,000, and the structure carries an interest-only bridge of roughly $328,000 through the enrollment ramp — the single most important structural feature for a childcare startup, because a center fills over 18 to 36 months and cannot service fully amortizing debt on day-one enrollment.8 In Illinois the 7(a) channel is deep: a single SBA district office in Chicago serves the state, active 7(a) lenders such as Byline Bank are well established, and SomerCor and Growth Corp lead on the companion 504 program, so this credit sits inside a well-traveled lane.11 The rural USDA Community Facilities and Business & Industry channels are the alternative for communities of 20,000 or fewer, which this suburban submarket is not, so the deal routes to 7(a) rather than USDA.18
Feasible and bankable, on coverage the credit can document.
The stabilized model builds revenue from the licensed classrooms, nets the ratio-driven labor bill and occupancy cost, and carries the coverage from a ramp year through stabilization to the SBA floor and beyond.
| Line | Basis | Amount ($000s) |
|---|---|---|
| Tuition revenue | ~125 enrolled (~83% util) × ~$20,300 blended4 | 2,540 |
| Registration & ancillary fees | supply, activity, meal & late fees | 110 |
| Total revenue | — | 2,650 |
| Personnel | ~23 classroom staff to ratio + director/admin, incl. benefits (~71% of opex)56 | (1,520) |
| Occupancy | property tax, insurance, utilities, R&M13 | (300) |
| Food, curriculum & classroom supplies | scales with enrollment | (160) |
| Marketing, licensing, admin & G&A | — | (155) |
| Total operating expenses | — | (2,135) |
| Net operating income (NOI) | total revenue less operating expense | 515 |
Personnel runs ~71% of operating expense, inside the 70–80% of cost-of-care range the HHS Office of Child Care documents; wages set above the $15.41/hr national median for the competitive suburban labor market. See sources 5 and 6.
| Year | Stage | Utilization | NOI | Debt-service basis | DSCR |
|---|---|---|---|---|---|
| Year 1 | Ramp (interest-only bridge) | ~65% | ~328 | Interest-only ~328 | 1.00 |
| Year 2 | Building | ~76% | ~444 | Full amortizing ~355 | 1.25 |
| Year 3 | Stabilized | ~83% | 515 | Full amortizing ~355 | 1.45 |
DSCR computed as NOI divided by the period debt-service obligation. Year 1 is intentionally at ~breakeven on the interest-only bridge; permanent, fully amortizing coverage is measured once enrollment stabilizes. See source 7 for the enrollment-efficiency mechanics.
The stabilized 1.45x coverage is the figure the lender documents, and it clears the SBA's roughly 1.15x floor with real headroom.10 By Year 2 the center already covers fully amortizing debt service at 1.25x on ~76 percent utilization. The Year 1 figure of 1.00x is deliberate — it is the enrollment-ramp year — which is exactly why the structure carries an interest-only bridge through stabilization: a childcare center fills over 18 to 36 months, breaks even on the HHS calculator's base scenario only near 85 percent enrollment efficiency, and a pro forma that models near-full occupancy in year one is the single most common way these files fail review.78 The graded ramp here holds because premium private-pay tuition lowers the center's breakeven utilization below the subsidized base case — not because enrollment is assumed away.
On the equity side, the $0.35 million injection earns modest levered free cash flow during the graded ramp — negligible in the interest-only Year 1, then building as utilization climbs and after a classroom-equipment reserve. The bulk of early cash flow is retained to fund working-capital runway and reserves rather than distributed, which tempers the return. The exit is valued on a going-concern basis, not a premium net-lease cap rate: an owner-operated single center trades on its own cash flow at roughly 2.99x to 4.37x EBITDA, well below the ~6.9 percent cap a credit-tenant net-leased childcare building commands.15 Capitalizing a conservatively grown Year-10 cash flow on that going-concern basis, net of the outstanding SBA balance and selling costs, the blended result is an illustrative levered equity IRR of about 20 percent over a 10-year hold.
Verdict: financially feasible and bankable. On independently derived demand, a graded enrollment ramp, a stabilized 1.45x DSCR, and a ~20% levered equity IRR, the projections support the SBA 7(a) credit.
Independent enrollment ramp, staffing, competition, and DSCR stress.
The engagement was scoped the way a credit committee reads it. As an independent daycare feasibility consultant, our role is to test the sponsor's projection against the market, not to restate it — the value of the deliverable is precisely that it carries no stake in the outcome. We built enrollment classroom-by-classroom on an 18-to-36-month lease-up curve, staffed every open room to the youngest-child ratio, and modeled the mixed-age rule that can drop an allowed ratio the moment an infant enters a room, so the labor line is not quietly understated against revenue booked at licensed capacity.
The coverage analysis was then stress-tested. We ran the debt-service coverage against the two variables a childcare center is most exposed to — enrollment efficiency and wage inflation — to confirm the credit still holds if the ramp slips or the labor bill runs hot, and we stress-tested tuition against local ability-to-pay rather than an aspirational rate. One scope boundary is worth stating plainly, and it carries heightened sensitivity here because children are involved: as the feasibility consultant, we reference, but do not perform, the Phase I environmental site assessment — lead, asbestos, and soil are serious concerns for a childcare site and run as a separate environmental professional's engagement in parallel to the study.10 That combination — independent demand, a graded ramp, staffing to ratio, competition, and a stressed DSCR — is what lets the lender rely on the file.
Representative engagement
This is an anonymized, illustrative worked example of our methodology, built on market data current to 2026; figures are representative of a typical engagement of this type and do not depict a specific client, site, or completed transaction.
Underwriting an Illinois childcare center for an SBA loan? Start with the feasibility study.
Feasibility Study Company prepares independent childcare and daycare feasibility studies for SBA 7(a) and 504 credits, built to the coverage standard your lender must document. A methodology briefing walks through the demand, enrollment-ramp, staffing-to-ratio, competition, and DSCR analysis behind a case like this one, calibrated to your submarket, license, and tuition.
Request a methodology briefingData sources and dates.
The deal figures are illustrative of the engagement type; the market data that grounds each dimension is real and sourced, drawn from our standing Illinois, Childcare & Daycare, and SBA 7(a) & 504 analyses and the primary authorities they cite.
- U.S. Census Bureau, Vintage 2024 Population Estimates (population as of July 1, 2024; released December 2024), via Illinois Policy Institute, The Center Square, and NBC Chicago: Illinois population 12,710,158, up 67,899 (first gain in a decade), with 64 of 102 counties still losing population.
- U.S. Census Bureau, American Community Survey 2024, Chicago–Naperville–Elgin metropolitan statistical area (~9.36–9.41M); roughly three-quarters of Illinoisans live in the Chicago metro.
- Center for American Progress (2025): 46% of children under 6 in a licensed childcare desert (down from 51% in 2018); desert defined as more than 3 children per licensed slot. Council of Economic Advisers (April 2024): prime-age (25–54) women's labor-force participation ~78%.
- Child Care Aware of America (May 2025): 2024 national average childcare price $13,128/year (+29% since 2020); center-based infant care ~$14,760/year; infant care exceeded in-state public college tuition in 41 states plus D.C.; 92,550 licensed centers and 98,294 licensed family child care homes in 2024.
- U.S. Department of Health and Human Services, Office of Child Care, “Estimating and Reporting the Costs of Child Care” (updated March 2025): personnel expenses typically 70%–80% of a center's cost of care.
- U.S. Bureau of Labor Statistics, Occupational Employment and Wage Statistics (May 2024): median childcare-worker wage $15.41/hour; preschool teachers median $37,120/year; employment projected to decline 3% 2024–2034. Staffing shortages cap enrollment even where waitlists exist.
- U.S. Department of Health and Human Services, Provider Cost of Quality Calculator (PCQC): base scenario breakeven at 85% enrollment efficiency; ~11% of net revenue profit at 95%; a loss exceeding $27,000 (5.7% of net revenue) at 80%; bad-debt discipline under 3% of revenue.
- Honest Buck (2025–2026): realistic ramp to consistent profitability of 18–36 months, infant rooms filling slowest; 70%–85% occupancy typical for stable centers; 62% occupancy a “profitability emergency.” Operator-education source; indicative.
- Illinois Department of Children and Family Services, Licensing Standards for Day Care Centers (89 Ill. Adm. Code 407): staff-to-child ratios by age group and director qualification requirements. Childcare is licensed by DCFS, not gated by Certificate of Need.
- U.S. Small Business Administration, SOP 50 10 8 (effective June 1, 2025) and 13 CFR 120.160(b): a feasibility study is discretionary but expected for startup and ground-up projects; childcare a favored, owner-operated, essential-service use; owner-occupancy 51% (existing) or 60% (new construction); 10% equity injection for startups; minimum SBSS 165; Franchise Directory listing for franchised brands; streamlined 504 environmental review.
- U.S. Small Business Administration, Illinois District Office (Chicago) directory (2025); Byline Bank / SBA Illinois 7(a) Lender of the Year and FY2024 volume; SomerCor and Growth Corp (504 Certified Development Company activity and coverage), via data.sba.gov.
- U.S. Small Business Administration, Policy Notice 5000-879058 (issued May 18, 2026): combined 7(a)-plus-504 cap of $10M effective July 4, 2026.
- WalletHub 2025 property-tax rankings via Illinois Policy Institute: Illinois effective property-tax rate 2.07%, second-highest nationally (~$6,285 median-home bill vs. ~$2,969 national); Tax Foundation (2023–2026).
- Construction and buildout estimates (Childcare Calculators 2026; Terrapin CG; B+E): ground-up ~$200–$550/sq ft; 35–50 sq ft indoor and 75–100 sq ft outdoor play space per child; total project cost $1.5–$5 million+ on 7,500–12,000 sq ft; licensing, zoning, and buildout gate of 6–18 months. Single-source ranges; treated as directional.
- Peak Business Valuation and CT Acquisitions (2026): daycare going-concern multiples of 2.39x–3.35x SDE and 2.99x–4.37x EBITDA for single centers; childcare single-tenant net-lease cap rates near 6.9% at mid-2025 (B+E Net Lease). Going-concern and net-lease bases are non-comparable and must not be blended.
- Administration for Children and Families / ASPE: the American Rescue Plan (March 2021) provided $39 billion in childcare funding, including $24 billion in stabilization grants; stabilization funds expired September 30, 2023. National Institute for Early Education Research (NIEER), 22nd State of Preschool Yearbook (2023–24): record state-funded preschool enrollment; state pre-K a double-edged variable that validates demand while adding publicly funded seats.
- Illinois Health Facilities and Services Review Board, Certificate of Need program; Illinois Health Facilities Planning Act, 20 ILCS 3960 (capital thresholds effective July 1, 2025); National Conference of State Legislatures CON survey (2025). The CON regime governs health facilities, not day-care centers.
- USDA Rural Development, Illinois state office (Champaign): Community Facilities Direct Loan & Grant funding child care centers as essential community facilities in communities ≤20,000 population, and Business & Industry for rural for-profit childcare; joint USDA-RD / HHS-ACF Rural Child Care Resource Guide (2024). Noted as an alternative channel; this engagement is 7(a).