Kate Peach, managing director of Early Years Childcare, started an online petition in the summer calling for more funding for threeand four-year-olds or for nurseries to be able to charge top-up fees.
Campaigners at www.freechildcare.org.uk, set up by Ms Peach, are reporting a rise in nurseries closing, particularly smaller ones.
Ms Peach told Nursery World, 'To cut costs, we offer the free entitlement from 8.30am to 11.30am, so those hours will not cover a mealtime, for example. We offer those three hours every day and on a term-by-term basis. That reduces the cost of those hours so we're not losing as much money.'
The chain has nine settings spread over Sussex, Hampshire and south-east London. Ms Peach calculated it loses between 94 and 97 pence per hour on some places.
'We are changing our fee structure, attendance and sessional patterns, and access to the services we offer just to make sure we are not losing too much money. We want to continue improving our service and this puts that in jeopardy, for example investing in staff training,' she said.
'If we took more and more of a loss in income, one of the things we would come round to considering is whether in September we withdraw from the scheme. The challenge is wanting to enable access to our provision for all but also needing to be sustainable.'
Adeline Garman, business development manager at the chain, said, 'We can absorb the costs better than most settings, but that begs the question, should we have to? Our campaign is gathering momentum, but in the meantime, how many providers will go under?'
Early Years Childcare is also part of the pilot scheme of the free entitlement for two-year-olds in West Sussex.
'The rate we get for this is substantially higher - we are being paid the correct amount in this case,' said Ms Peach. 'Perhaps we are losing 10p per hour per child, which we can work with. But again, should we have to do this? Pilot schemes are always paid at a better rate, so a national roll-out for two-year-olds could see similar underfunding.'