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How to get financing for a food truck
Where to find the dough to buy equipment, cover repairs and more.
Running a business on wheels means you might not benefit from the types of financing your brick-and-mortar cousins need. And bad weather can mean a huge drop in sales. While you won’t need to spend on rent or real estate, you’ll likely drop more dough on equipment and your vehicle. Luckily, there are several options that can help your business stay afloat and grow.
Food trucks can qualify for Restaurant Revitalization Grants
The American Rescue Plan Act created a grant program for the food service industry to make up for lost revenue during COVID-19. Food trucks can qualify for the difference between their 2019 and 2020 gross receipts. Or, food trucks established after 2019 can qualify for a grant based on payroll expenses.
This option is even available to food trucks started after the stimulus package was passed in March 2021. You can apply on the SBA website once the program is launched. But applications will only be available to women-, minority- and veteran-owned businesses for the first 21 days.
6 financing options available for food trucks
True, your food truck could apply for a traditional business term loan to cover a one-time cost. If it can meet the eligibility requirements, that is. But many lenders don’t want to give an unsecured loan to businesses without strong, steady cash flow — which many food trucks just don’t have. Instead, consider one of the following options.
1. Equipment loans
The equipment is what sets your food truck apart from, well, a truck. There’s a chance you’ll need to install sinks, ovens, griddles, exhaust fans, shelving and more before you can serve your customers.
Equipment loans are a type of secured term loan that uses the equipment you’re buying as collateral. Typically how much you can borrow depends on the cost of the equipment. Some vendors offer equipment financing themselves, but you might want to look into other business lenders that offer equipment financing to make sure you’re getting a competitive deal.
Equipment loans aren’t ideal for new trucks. You could have a hard time qualifying unless you have some experience in the restaurant industry. Instead, consider an equipment loan when you want to expand or replace equipment after a few years.
2. Vehicle loans
Similar to equipment loans, a vehicle loan is based on the value of your truck, which is used as collateral. However, you likely won’t be able to buy your first truck with a vehicle loan. New customized food trucks can run between $80,000 and $200,000 — and lenders typically like to see that you’ve had some experience before offering that much money.
But if you’re looking to expand your fleet or upgrade your current truck, a vehicle loan could help you front those costs. It’s not without risk, however: If you’re unable to pay off your loan, you’ll lose the most important part of your business.
Like with equipment loans, you can often find vehicle financing directly through your dealership, though some business loan providers might offer better deals.
When you’re just starting out and looking for your first vehicle, you might want to look into microloans instead. Microloans are small-dollar term loans that come with shorter terms and higher rates than your standard business loan. But they’re friendly to young businesses if you need a few thousand dollars to buy your first truck or a few key pieces of equipment.
You might want to take a close look at this option if you’re part of an underserved community. Many nonprofits and charities offer microloans at more favorable terms with the aim of promoting female, minority and veteran entrepreneurs. The Small Business Administration (SBA) also has a microloan program that’s startup friendly.
4. Merchant cash advances
Seasonality can hit food trucks more than other types of businesses — cold weather and storms often have a direct effect on your cash flow. A merchant cash advance is one of the more flexible working capital options out there that could help you pull through a tough winter.
It works like an advance on your future sales, which you repay plus a fee with a percentage of each credit card purchase. While some lenders have monthly minimums your business must meet regardless of your sales, you still have more room for a slow month than you would with a term loan. It’s one of the more expensive types of business loans out there, however.
5. Business lines of credit
When your food truck only has a few minor cashflow gaps or an ongoing project, it might want to consider taking out a business line of credit. Similar to a credit card, a line of credit gives your business access to a credit limit, which it can draw from as it needs — only with lower rates. You only need to repay what you draw plus interest, depending on how long you take to pay it back.
Depending on your lender, your withdrawal might turn into a short-term loan while other lenders might require a minimum monthly repayment.
It’s hard to have a successful food truck without a substantial social media following — how else will your hardcore fans know where you are next Tuesday? If you’ve already got a strong presence on Twitter and Instagram, you might be able to raise the funds you need directly from your fan base by creating a crowdfunding campaign.
You can use these funds for virtually any business expense. However, many platforms don’t let you touch the money unless you reach your fundraising goal. They also typically charge a percentage of each donation as a fee.
Compare business loan providers
How to decide which loan is best for my food truck business
Before you start looking for a business loan, think about what you need funds for. Need money to replace equipment? You might want to look into equipment financing. Need help covering day-to-day costs? You might want to look into your working capital options.
Also, consider your truck’s ability to repay a loan. If you’re struggling to cover your generator or gas costs and don’t think business is going to improve any time soon, a more flexible loan like a merchant cash advance might be the way to go. But if you think you can make regular repayments, you might want to go for the less-expensive line of credit.
What common business expenses can I cover with financing?
Your food truck might want to use financing to cover the following types of expenses:
- Inventory. Working capital loans like a merchant cash advance or a line of credit can help make sure your food truck’s fridge and pantry are stocked during the off season.
- Equipment. Equipment loans can be a great option when you’ve been in business for a while, and microloans can help you get your first oven when you’re just getting started.
- Trucks. A microloan can help you out when you’re getting your first truck, and a vehicle loan can help you expand your fleet or make an upgrade.
- Repairs. Chances are your truck or your equipment is going to break down. If you don’t need to replace it just yet, a term loan or microloan could help your business cover the cost of repairs.
- Payroll. Unless you’re flying solo, a merchant cash advance or line of credit can help you keep the skilled staff you need when things get slow.
What do I need to apply?
What you need to apply depends on what type of financing you’re looking for. Since food trucks are highly seasonal, some business lenders might want to see more documentation than they would from your standard restaurant. You might expect to provide the following documents:
- A business plan. This is where you get to make a case for your business and convince your lender you’ve thoroughly thought this through.
- Financial projections. These are particularly important if you’re applying for a microloan when you’re just getting started — it shows that your business will likely be able to pay off its debt on time.
- Personal financial statement. Many lenders require business owners to back their loan with a personal guarantee, meaning that you’re responsible for repaying it if your truck fails. A financial statement proves your ability to repay.
- Licenses and permits. Every city has its own rules when it comes to licensing and permits — and your lender will likely want to see that you’re following them before funding your business.
What challenges might I face as a food truck owner?
Finding a loan as a food truck owner isn’t easy. Lenders tend to consider the food service industry to be risky as it is. But food trucks can have an even harder time if they’re seasonal or make a smaller profit than a restaurant.
Securing your loan with collateral or backing it with a personal guarantee might make it easier for you to get funding. You also might want to invest some time cleaning up your business’s finances so you can make a strong case for yourself. Alternative loans like merchant cash advances can be a lifesaver in a pinch, since they don’t have as strict eligibility requirements.
5 tips for starting a food truck from the National Restaurant Association
- Find a commissary. A commissary is a kitchen that meets health department standards where you can prep your food and wash dishes outside of the truck. It’s at a separate location and can save you a lot of time and effort during the lunch rush.
- Try catering. Catering private events and festivals is a great way to get your name out there and build a fan base. Plus, the media coverage at festivals might be able to give you an extra boost.
- Know the law. Familiarize yourself with the long list of regulations you’ll need to follow in your city so you don’t get shut down.
- Become a social media expert. Using Twitter, Instagram and Facebook are great ways to build and maintain your fan base by engaging with customers and offering coupons.
- Keep it simple. Having a simple but creative menu can keep costs down while ensuring every bite is as delicious as it should be.
Getting a business loan as a food truck owner isn’t always easy. And traditional financing isn’t necessarily the best way to cover repairs or invest in inventory. Keep seasonality in the forefront when deciding what type of loan you need and whether you can handle repayments.
To learn more about your financing options and compare lenders, read our guide to business loans.
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