Banks still open for business in the nursery sector

However, this is not the case in the nursery sector and beleaguered banks are still keen to lend to these businesses, which they see as reliable and steady income generators.

Most High Street lenders still remain favourable towards lending into the nursery sector. Loan-to-value parameters, of course, are a bit stricter, but there is money out there for the right property.

Part of the reason for their enthusiasm is that, on top of the availability of commercial mortgages and credit for nurseries, there are also a number of other factors that have come together in the present environment to create attractive opportunities for those willing to consider them.

It is true that the nursery care market has matured significantly over the last couple of decades, but that does not mean it has become any less viable as a long-term, profitable enterprise or that demand is waning.

Recent respectable sales include the Fermead nursery in Coatbridge, registered for 54 child places, which sold off an asking price of £450,000 and the Abbey Nursery in Paisley, with 80 child places, which comfortably secured its target price. The always-active Poddar group have just recently opened an impressive, state-of-the-art nursery called Nithsdale House in Pollokshields in the south side of Glasgow.

In fact the nursery market has so far proved very resilient to the recession and anecdotally attendance numbers and nursery fees are holding up into the face of the cooling economic breeze.

It is also worth considering that as tighter financial belts force many couples to cut back on their social life, they are turning to what might be described as more traditional forms of entertainment to keep themselves amused.

In turn some expect this to create a mini surge in the birth rate and create further demand in the nursery sector. Whether this happens remains to be seen and there are arguments that say couples will actually be more stringent with their family planning when money is tight.

What actually happens in the years to come remains to be seen, however, it is an incontrovertible fact that changing working patterns and social patterns have seen a higher reliance put on nursery care today than at any other time in the past and this is unlikely to change in the years ahead.

There are two sides of the coin to consider for anyone interested in getting into the nursery business and either people can look to start up a nursery for themselves or they can buy a business which is already up and running. There is still considerable interest form prospective buyers, our Edinburgh office took instruction from a client only recently to find him a an existing nursery or site with up to 50 child places.

For those looking to start from scratch the depressed property market gives them the chance to pick up a bargain and converting buildings for nursery use tends to be relatively inexpensive and easy to do. There are a number of site prospects in the pipeline in Lanarkshire which will certainly spark something of a rush if they are offered at a realistic valuation.

It is also the case that well situated plots of land for nurseries are no longer being as hotly contested by developers seeking to turn them into more profitable residential housing. This means those looking to actually build their own nursery should find it easier and cheaper to get hold of land in the right location, at a price that sits comfortably within their budget.

Seeking and acquiring planning permission for nurseries tends to have a higher success rate, with local authorities happy to give the go ahead to businesses that will create jobs, improve services in the community and which tend to be relatively unobtrusive.

The only proviso would be that individuals make sure there is adequate parking to enable parents to pick up and drop off their young charges at the beginning and end of each day.

For those unwilling or unable to make the financial commitment of buying a property for their nursery, there are plenty of sites available on a leasehold basis and this approach can offer an excellent way to get started in the nursery business.

Not everybody will want to build a business from the ground up and buying into an established operation is the other side of the coin for those considering the nursery market. The market in Scotland is still dominated by independent operators rather than large national chains, though it has to be said that some of the independents,  for instance, the Poddar group have been on an acquisition spree which is pushing them into the major player league.

The beauty of researching and potentially buying a nursery is that their profit and loss accounts usually show the true trading levels of the business, which can be double -checked against fee rates and occupancy levels. It is, however, vital that proper professional advice is obtained from an experienced valuer of nursery businesses, as it is ultimately this income and profitability that drives the value/price of the business. In any event, funding will be subject to the Bank receiving forensic analysis of the business from the valuer and the Market Value it may command.

Now that the market has matured, getting a handle on these figures and properly researching them is essential. However so long as those new to the sector do their homework, it should not be too difficult to find a nursery that will keep laying profitable, if not necessarily golden, eggs long into the future.

Once an appropriate nursery has been identified securing the all important funding from the bank is easier than in many other areas of business, making the whole venture possible.

The starting point for anyone eyeing up these opportunities in the nursery sector will be the bank. That the nervy lending community is still keen to offer finance for these businesses is perhaps the surest affirmation of the opportunities they offer and a clear indication that there is at least one area of the commercial market that is not relying solely on miracles to get through the months ahead.

Ken Topping is an Associate in the Glasgow office of DM Hall, chartered surveyors, specialising in business valuations.

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