How to Finance a Childcare or Education Business Acquisition in Singapore

What are the ways to finance a business acquisition in Singapore?

There are five main sources, and most education deals combine two or three of them: your own equity, a bank loan, Enterprise Singapore's EFS-M&A loan through a bank, money from the seller (a vendor loan, deferred payment or earn-out) and outside investors.

How do bank loans for a business acquisition work?

Banks lend term loans that can be used to buy a business, including a childcare or education centre, based on your standing and the cash flow of the business you are buying.

Loan amounts, interest rates and tenures vary between banks and borrowers, so compare offers rather than relying on a typical figure. Expect a bank to look at:

• Collateral: depending on the amount, some banks ask for security such as property or equipment.
• Personal guarantee: most banks want one, especially for new businesses and acquisitions, which makes you or your partners personally liable.
• Your income and standing: the bank assesses the income and financial position of the applicants.
• The target's financial health: profits, cash flow and the quality of its accounts.

For an education business, a good credit paper also covers the points specific to the sector: the licence and its remaining tenure, the lease term compared with the loan term, enrolment trends and how much revenue comes from government subsidies. Present profit on a normalised basis, with owner salary and one-off costs adjusted, and show your workings. Our guide to normalised EBITDA and add-backs explains how.

What is the EFS-M&A loan and who qualifies?

The Enterprise Financing Scheme for Mergers and Acquisitions (EFS-M&A) is an Enterprise Singapore scheme, offered through participating banks, that finances the acquisition of local or overseas businesses and assets, with the government sharing the lender's risk.

The risk share makes a bank more willing to lend, but it does not reduce what you owe, and the bank still runs its own credit assessment, including any guarantee or collateral it requires. Scheme terms change from time to time, so confirm the current terms with Enterprise Singapore or your bank before you rely on them.

If you plan to use EFS-M&A, check early whether your buying company meets the local equity and turnover conditions, especially if you are buying with foreign partners.

How does seller financing work?

Seller financing means the seller accepts part of the price after completion instead of all of it upfront, either as a loan with interest or as fixed deferred payments.

• Upfront payment: the buyer pays a portion of the price at completion.
• Vendor loan: the seller treats the balance as a loan to the buyer.
• Repayments: the buyer pays the seller in instalments, monthly or quarterly, with interest if agreed, until the balance is cleared.
• Security: the buyer takes control at completion, but the seller usually asks for security, such as a charge over the shares or assets or a personal guarantee, until paid in full.

Deferred consideration is the simpler version: fixed amounts on fixed dates, not tied to performance. It is a debt you owe whatever happens.

Many sellers prefer a clean cash exit. After completion they have no control over the business that is paying them, which is a real risk. A seller is more likely to agree when the buyer is credible, the deferred amount is a modest part of the price, it is secured, and the payment period is short. Expect the seller to ask about your bank financing too, because a bank lender may require any vendor loan to rank behind it.

Where do earn-outs fit?

An earn-out makes part of the price depend on the business hitting agreed targets after completion, such as enrolment, revenue or EBITDA.

It is not strictly financing, but it reduces the cash you need at completion and shares the risk of a business whose results depend on the founder or on enrolment holding up through the change of ownership. It works only with clear targets, a defined measurement method and rules on how the buyer runs the business in the meantime. Read our guide to earn-outs in education business deals before proposing one.

Can you bring in an equity partner or investor?

Yes: an investor, another operator or family members can take shares in your buying company in return for cash, which reduces the debt you need.

Venture capital and private equity investors are less common for single childcare centres, but some will look at profitable multi-centre groups. Whoever invests, agree a shareholders' agreement covering control, dividends, future funding and exit before you sign the SPA.

Investors can bring ECDA obligations. Directors, partners and anyone with general management of the centre are Key Appointment Holders, and new KAHs must submit ECDA's self-declaration form on offences, warnings and financial capacity, with at least 1 month's written notice to the CLO and parents for a change in an existing licensee (ECDA Code of Practice s3.5).

Can you borrow against property?

If the business you are buying owns its premises, a property-secured loan may let you borrow larger sums at lower interest rates, with the property as collateral. It is only an option where the premises are owned rather than leased.

How do you put a funding plan together?

Start from total cash needed, not the price, and match each item to a source.

• Purchase price, split between completion and any deferred or earn-out amounts.
• Completion adjustments for prepaid fees and parent deposits; see prepaid fees and deposits at completion.
• Transaction costs: legal, accounting, due diligence and any stamp duty for your structure.
• Working capital for payroll and rent in the first months, including any period when subsidy payments are delayed.

Then line up the timing. Get an indication from your bank before you sign the LOI, and if you depend on a loan, make financing a condition in the LOI and SPA. Run loan approval in parallel with the ECDA process, which takes at least 3 months for a transfer of licence. See how to buy a childcare centre for the full sequence.

How Edugrow helps

Edugrow has advised on more than 70 education business transactions since 2014, and can introduce buyers to financing partners familiar with education sector acquisitions. Edugrow can also help structure deferred or performance-linked payments that a seller is willing to accept, and can draft a neutral Sale and Purchase Agreement that sets out those payment terms clearly. Register as a buyer to receive centres that fit your budget and funding plan.