Why CSBFP fits childcare operations
Opening a licensed childcare centre requires heavy upfront capital investment: the physical space must meet regulated room dimensions, lighting, ventilation, and washroom-ratio standards before a licence is issued. None of that buildout generates revenue until the licence is in hand and the first children are enrolled.
CSBFP is well-suited to this investment profile. Leasehold improvements and equipment are the primary eligible costs for a childcare build-out, the same categories the program was designed to cover. And once the centre is operating, the revenue stream is unusually stable: licensed spots are provincially subsidized in most of Canada, and occupancy rates at properly located centres tend to stabilize quickly because demand for licensed childcare consistently exceeds supply in urban and suburban markets.
That revenue stability is what makes childcare a strong DSCR candidate at underwriting. A lender looking at a childcare centre at 80% licensed-capacity occupancy with provincial subsidy revenue sees a predictable income profile; the underwriting risk is on the build-out and licensing timeline, not the operating cash flow once the centre is running.
Eligible CSBFP costs for childcare centres
Leasehold improvements
Leasehold improvements are typically the largest CSBFP cost in a childcare build-out. Eligible leasehold improvements for a childcare centre include:
- Interior partitioning to create age-appropriate rooms (infant room, toddler room, preschool room), washrooms to regulatory ratios, sleep rooms, and indoor play areas
- Commercial kitchen or kitchenette installation (cabinetry, plumbing, ventilation, appliances) where meal preparation is part of the centre’s programming
- Flooring modifications (soft flooring for infant rooms, resilient commercial flooring throughout)
- Lighting upgrades to meet provincial standards
- Security entry systems, window treatments, and other regulatory-compliance improvements
- Accessible entrances and barrier-free washrooms where required by code
Lenders typically require that the CSBFP loan for leasehold improvements not be amortized past the expiry of the lease. A childcare operator signing a 10-year lease should confirm that either the lease term (or a renewal option exercised in advance) runs beyond the loan maturity date.
Equipment
Childcare equipment eligible under CSBFP includes:
- Infant cribs and change tables (capital assets, not disposable supplies)
- Toddler cots and preschool sleeping mats
- Age-appropriate furniture (tables, chairs, storage units, bookshelves), commercial-grade, not residential
- Outdoor and indoor playground equipment (fixed play structures, climbers, sandboxes with covers, swings)
- Commercial kitchen appliances (refrigerators, dishwashers, ovens, warming equipment)
- Safety and monitoring equipment (intercoms, security cameras installed as capital fixtures)
Disposable supplies (diapers, wipes, craft materials) are operating costs, not capital assets, so they do not count as equipment. They can be financed only as eligible working-capital costs, within the program’s $150,000 combined limit for intangible assets and working-capital costs. The line between equipment and supplies is whether the item has a useful life extending beyond the current accounting period and is recorded on the balance sheet as a capital asset.
Working-capital line of credit
The pre-opening period, from lease signing through buildout, licensing inspection, and first-child enrollment, can span 6 to 18 months, during which the operator is incurring costs (rent, insurance, staff training, licensing fees) with no revenue. The CSBFP working-capital line of credit (up to $150,000, separate from the term loan) is the most flexible tool for managing this pre-revenue period.
The LOC can fund pre-opening operating costs, be drawn down during the build-out and licensing phase, and repaid once the centre reaches operating capacity and provincial subsidy payments begin flowing regularly.
Eligibility: carrying on a business is what matters
CSBFP eligibility does not turn on for-profit versus non-profit status. Since June 30, 2021, non-profit organizations, charities, and religious organizations are eligible for CSBFP as long as the organization carries on a business, meaning it operates the childcare service, charges fees, and functions as an ongoing commercial operation rather than existing purely for fundraising, advocacy, or grant administration. This is a material point in the childcare sector, where a significant portion of operators are organized as non-profit societies or parent-run cooperatives.
- For-profit childcare operator (corporation or sole proprietorship): Eligible for CSBFP provided annual gross revenues are $10,000,000 or less and the business meets other eligibility criteria.
- Non-profit childcare society: Eligible for CSBFP provided the society carries on a business, operating the childcare centre, charging fees, employing staff, in the ordinary course. A non-profit society whose activities are limited to fundraising, advocacy, or grant administration, with no operating childcare business of its own, does not qualify. Eligible non-profit operators can also access provincial childcare capital grants and municipal community space programs alongside CSBFP.
- Parent cooperative: Eligible if the cooperative carries on a childcare business, operating the centre and charging fees to families, regardless of whether it is organized on a for-profit or non-profit cooperative basis.
An operator opening a new centre or expanding an existing operation should confirm with their lender that the entity meets the “carries on a business” test before applying. A corporation or non-profit society actively operating the childcare centre (charging fees, employing staff, running the day-to-day service) is the standard eligible structure; an entity with no operating business is not.
Licensing timelines and the 365-day rule
Childcare build-outs often take longer than 12 months from lease signing to licence issuance. The CSBFP 365-day rule looks backward, not forward: a cost can be financed only if it was incurred no more than 365 days before the lender approves the loan. The program sets no deadline for disbursing the loan after approval.
For a childcare centre with a long buildout, the timing still matters. Key considerations:
- Get the loan approved before, or early in, the buildout. Costs you pay out of pocket more than 365 days before approval cannot be financed under the program, so a file that waits for the licence before applying can lose its early costs.
- Phased disbursements, drawing down the loan in stages as construction milestones are reached, are common on childcare files. The loan counts as made on the day of the first disbursement, and the lender must register it with ISED within 6 months of that date.
Common issues on childcare CSBFP files
- Non-profit structure with no operating business. Since June 30, 2021, non-profit status alone does not disqualify a childcare operator. What still trips up a file is a non-profit entity that does not itself carry on the childcare business, for example a holding entity that only administers grants while a separate operator runs the centre. The entity applying for CSBFP must be the one actually operating and charging for the childcare service.
- Lease term shorter than the loan. A 5-year lease with a leasehold improvement loan amortized over 7 years will be declined or restructured. A renewal option is fine if the landlord consents to the renewal before loan closing.
- Projections built on 100% licensed-capacity occupancy. A lender will not accept day-one full occupancy as the base case. The business plan should show a ramp, starting at 30 to 40% occupancy in month 1, building to 70 to 80% by month 12, and confirm the debt service is covered at the 12-month occupancy level, not just at full capacity.
- Licensing condition as a condition precedent. Some lenders require confirmation that the licence has been applied for (or conditionally approved) before they will advance the loan. Others fund on the strength of the lease and the operator’s licensing plan. Confirming the lender’s specific conditions precedent early avoids surprises at closing.
A worked example: new childcare centre build-out
A for-profit childcare operator signs a 10-year lease on a 3,500 sq ft retail space and plans the following build-out:
- Leasehold improvements: $280,000 (partitioning, kitchen, washrooms, flooring, lighting)
- Equipment: $60,000 (cribs, cots, furniture, playground equipment, kitchen appliances)
- Total: $340,000
Equity injection: $40,000 (approximately 12%). CSBFP term loan: $300,000. LOC: $75,000 for pre-opening working capital.
Structure check: $340,000 non-RP, inside the $500,000 sub-limit ✓. Loan $300,000 (inside the $1,000,000 ceiling ✓. LOC $75,000) inside the $150,000 LOC ceiling ✓. Lease 10 years, term loan can be amortized up to 10 years ✓.
At Prime + 3% (7.45%) amortized over 10 years, the monthly term loan payment is approximately $3,550. The centre has 40 licensed spots; at 80% occupancy (32 children) and a blended monthly fee of $1,800 (a combination of parent fees and provincial subsidy), monthly gross revenue is $57,600. After operating costs (staff, rent, insurance, supplies, admin) of approximately $47,000 per month, monthly EBITDA is $10,600. Annual debt service (term loan + LOC drawn at average $40,000 balance at Prime + 5%): approximately $46,400. DSCR: $127,200 / $46,400 = 2.74x, well above the 1.25x threshold.