Term Loan School Learns Its Own Lesson
Author: Casey Marie Long
Date posted: 04.15.22

Starting another preschool in Southern California in an area with excess demand for childcare services was a good bet for a small childcare chain. Having found the right location, hired teachers, and built up enrollment, things were looking bright for the company. Though they had taken their time and done their research on the area, there were a few unanticipated issues that arose with their new location.

They were correct that demand existed for a preschool, but they did not realize that a large number of the students would be taking the summer off to spend time with older siblings who were off of school. Nearly 40% of the students left the program in the spring as the older children’s schools got out for the summer. The owners had expected the students to stay through the summer and leave in the fall to go to kindergarten but then a new set of children would age into the program. Having built an award-winning team of teachers, they were reluctant to cut hours for their staff because they didn’t want their teachers to seek employment elsewhere.

Though the company’s other locations were doing well, the unexpected drop in revenue left the company with uncomfortably low cash reserves. They knew that they could have a better summer the next season with more foresight and preplanning, but they had to make it through the current summer season.

The company turned to a bank term loan to create a cash reserve and to ensure that they were able to support the company’s payroll as children re-enrolled in the fall. They obtained a bank term loan of $225,000 for 3 years which was enough to comfortably support all of their centers and be able to focus on building the newest center’s enrollment without having to micromanage their cashflow.  Knowing that they could also prepay the loan without penalty meant that they were not locked in to paying interest on the loan for a long period of time.

 

The company and the new center survived the low enrollment through the summer and were able to use the experience to tailor their marketing to students that needed year round childcare. The following summer, they only lost 10% of their students at the beginning of summer and had children on the waiting list ready to fill up the majority of those spaces. The company paid off the bank term loan 10 months early and saved nearly a year of interest payments.

About The Author | Casey Marie Long

Casey has 12 years of technical writing experience. She is also a CPA and bookkeeper. Casey graduated from the University of St. Thomas (Minnesota) with a B.A. in mathematics and currently resides in San Diego, CA.

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