A scheme offering 30 hours of free childcare a week has had a financial impact on providers, a charity says.
Since 1 September 2017, most working parents in England have been entitled to the free care for children aged three to four during term time.
But the Pre-School Learning Alliance (PSLA) said some childcare providers were struggling to remain open because of increased running costs.
The government said it would “continue to monitor delivery costs”.
According to the Department for Education (DfE), the parents of more than 340,000 three and four-year-olds have benefitted from the initiative since it started 12 months ago.
The government pays a national average of £4.98 per hour for places to local authorities, of which a minimum of 94% is passed on to providers.
The PSLA charity surveyed 8,000 nurseries and childminder firms between 17 July and 23 August.
It received answers from 1,662 providers and found 46% of them felt the scheme “had a negative financial impact on their business”, while two-thirds said funding for child places did not “cover the full hourly cost of delivering the places”.
Gillian Simpson-Morris, managing director of The Acorns in Eldwick day nursery, in Bradford, said she was “feeling squeezed” because funding for child places there had dropped by 66 pence to £4.10 an hour while the cost for “everything is going up”.
“We have to pass the cost on to parents – we’ve nowhere else to go with it,” she said.
“Because of price hikes everywhere else, everything we buy is going up, the salaries are going up, we’ve got living wages going up, minimum wages going up, it’s not a very highly paid sector but we try and pay what we can.
“We have to be viable. If we’re not viable then we would disappear and lots of providers nationally have disappeared.”
Jennifer McCanna, a mother of two children from Sheffield, said despite the scheme not being “completely free” for her she had made a saving of £400 a month.
“I completely see the point of view of the childcare providers because they have to make their business work,” she added.
PSLA chief executive Neil Leitch said the scheme had to be adequately funded.
“It’s a great thing for the parents. It is not a great thing for the industry, in fact we’re seeing nurseries close specifically because of the introduction of this 30 hours policy.
“For the thing to be a success it has to be balanced… It won’t be a great offer long term if providers are going by the wayside.”
In a statement, the DfE said it had provided “£1bn extra funding a year to deliver all of this government’s free childcare offers”.
“We continue to monitor delivery costs and we have commissioned new research to provide further information on the costs around childcare,” it added.
The DfE said parents were saving up to £5,000 a year on childcare costs.