Even before the COVID-19 crisis, early care and education (ECE) providers operated at exceptionally thin margins due to difficult business models and decades of underinvestment in the sector. Caring for infants and toddlers requires a higher ratio of teachers to children than other parts of the education system, and many child care programs operate beyond traditional work hours, which further increases staffing costs. In addition, the vast majority of ECE business owners are women, people of color, and immigrants, many of whom have experienced systemic barriers to financial literacy and services that have limited their experience operating a business or interacting with traditional lenders.
The unfolding pandemic will only exacerbate the economic challenges of opening and operating ECE centers as the nation eventually prepares to transition back to work. ECE classrooms will need to adapt to new demands on physical space that further increase the cost of operations. For instance, ECE providers will need to plan for:
- Smaller class sizes to account for ongoing social distancing guidelines;
- Infrastructure upgrades like portable sinks to ensure consistent handwashing and new HVAC systems to meet health and safety standards;
- Increased need for cleaning and sanitation throughout the facility; and
- New spaces that can be separated from common areas to decrease human contact.
These new considerations and others will inevitably increase costs. Providers would be hard-pressed to absorb these increased expenses under normal operating conditions, let alone when they will need to operate below prior capacity levels for an unknown duration. This mismatch between costs and revenue – already precarious before the crisis – will be insurmountable for many ECE providers: recent data suggests that nearly half of the nation’s child care slots may permanently disappear as a result of the pandemic.
The nation cannot afford to lose any supply of quality child care, which is why it is so urgent that Congress provide substantial investments in the sector to support providers during the crisis and help them reopen strong programs. But it is not enough to invest in the ECE sector only to force providers back into the same vulnerable business positions they experienced prior to the crisis. Instead, federal investments in ECE should be structured to ensure the long-term success of these critical small businesses. That includes resources for technical assistance and business capacity building, which are invaluable for ECE providers seeking to open or expand a child care business and navigate challenges associated with financing facility upgrades.
Technical assistance (TA) helps providers accomplish immediate needs – like navigating commercial leases, hiring architects and contractors, selecting vendors, and connecting with local resources – whereas business capacity building focuses on strengthening a providers’ long-term sufficiency as a small business operator – for instance, training providers to create and maintain a business operating budget and build financial sustainability.
Community Development Financial Institutions (CDFIs) are uniquely positioned to deliver critical TA and business capacity building support to ECE providers. CDFIs have developed decades of expertise assembling public and private sources of capital and deploying these resources to meet the diverse needs of community-based organizations. LIIF has provided grants and business capacity building support to ECE providers for more than 25 years. Our work has resulted in more than 270,000 slots of high-quality child care across several states.
The need for TA and business capacity building in the ECE sector exceeds that of other asset classes in which CDFIs invest capital, yet there is no dedicated federal assistance that CDFIs can leverage to strengthen the ECE sector. Rather, CDFIs cobble together funding from state or local governments and philanthropy. While these resources have proven invaluable to families and providers in need of immediate assistance, federal investments in TA and business capacity building resources are sorely needed for CDFIs to take this work to scale and ensure ECE providers have the tools necessary to build and maintain strong, resilient programs.
This need was urgent before the crisis and has only been illuminated by the ECE sector’s inability to access the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). ECE providers have experienced many barriers to accessing these resources, including lack of familiarity with SBA or SBA lenders, under-developed and under-resourced business capacity, and the relatively small size of ECE providers’ applications for PPP loans compared to other small businesses. Initial data suggests that the “Education Services” sector received less than three percent of PPP funds, despite the fact that child care is considered an essential service.
LIIF has partnered with Community Reinvestment Fund, USA (CRF) – a CDFI and SBA lender – to help mitigate these structural barriers for our ECE borrowers and grantees. LIIF is providing technical assistance and capacity building support to help providers understand the PPP application requirements, gather relevant documents, and submit a PPP application through CRF. Several ECE providers have now successfully received PPP loans after first applying unsuccessfully in other places. Support tailored to a provider’s individual business situation is necessary to ensure providers have equitable access to these critical SBA resources.
The COVID-19 pandemic has brought to light the existing inequities and inefficiencies in our nation’s treatment of the ECE sector. Now is the time to act. LIIF is committed to working with lawmakers and our partners in the National Children’s Facilities Network (NCFN) to ensure the ECE sector is adequately resourced, both to safely respond to current challenges and ultimately move forward with strong, resilient programs that contribute to the health and vibrancy of communities.