The Jersey Teachers Nursery will shut in July 2007 unless someone agrees to lend them enough money to rebuild their premises at Highlands, or finds them a new home.
The nursery opened in 1991 and currently provides education and care for 36 children under five whose parents are teachers or work in education.
But the nursery building has passed its sell-by date, and plans are in hand to rebuild the premises.
Designs for the redevelopment of the old nursery had been approved by Planning, and the bank agreed to a mortgage last week.
However, the States have told the Jersey Teachers Nursery management committee that they will no longer guarantee a £440,000 loan for which they gave in-principle approval last year.
Management committee chairman Kathryn Hay said that this meant that the bank would no longer support a mortgage and they would be unable to go ahead with the essential building work.