Food trucks are a hot new culinary trend, allowing small business owners to operate without the overhead of a traditional restaurant. Their limited menu means lower product costs, and the smaller space means that a small, efficient team can quickly expedite orders.
Whether you’re just starting your food truck dream or you’re a culinary professional who wants to try something new, finding the right food truck financing can mean the difference between success and failure. At Your Finance Partners, we offer specialized financing options for food truck owners.
Types of Food Truck Loans
Your food truck loan can cover just about anything, from the initial outlay to upgrades or products and supplies. Loans typically cover:
- The truck itself
- Cooking equipment such as fryers, ovens, and grills
- Raw product
- Paper and cleaning supplies
- Paying for fees and permits
Food truck operators have several options for financing, and often, a combination of several kinds of funding makes the most sense.
Small Business Loans
The Small Business Association (SBA) administers a Microloan Program, loans of up to $50,000 for operators to purchase supplies and inventory, business equipment, or for use as working capital. Working capital can include payroll expenses or the fees needed for different operating permits.
Borrowers won’t apply for a loan directly from the SBA. Instead, you’ll apply through a microloan intermediary, like Your Loan Partners. The average loan amount is $13,000, which means that this loan may not be best for initial start-up costs.
When applying for this loan, you’ll need to provide a personal guarantee and collateral to secure the loan.
This type of financing offers low-interest rates and a faster approval rate. The equipment you purchase is the collateral for the funding, meaning that you don’t have to guarantee the loan personally. Should you default, the equipment you purchased with the loan will be taken by the lender, who sells it to recover the outstanding balance.
For the food truck itself, consider a commercial vehicle loan. Since the equipment and vehicle are the collateral for the loan, the interest rates for these loans tend to be lower than other types of financing.
Some food truck operators may opt to lease the equipment. While your monthly payments will be lower, you won’t have the equipment as a business asset.
Business Line of Credit
A line of credit provides financing when you need it, instead of a lump sum loan. Instead of a structured loan payment, you borrow what you need and simply repay the portion of the line of credit you used. Lines of credit may be better for already established businesses and simply need a little extra capital from time to time.
Line of credit terms are different for each lender, and the monthly payment will depend on the amount you’ve borrowed. The amount you’re approved for can vary widely; lines of credit can range from $10,000 to $1 million.
Business Credit Card
A business credit card isn’t the best choice for initial start-up costs, as the amount of equipment needed to start a food truck business can cost much more than you’ll bring in in revenue for the first few months. This means that you’ll be unlikely to pay off the credit card quickly. Meanwhile, the interest on your credit card purchases accumulates.
Your business credit card should be reserved for expenses you can quickly pay off or for emergencies. For example, a credit card can cover the repair and get you back in business if the truck breaks down.
How To Secure Food Truck Financing
Each lender has different terms for food truck financing, but there are a few commonalities. Borrowers should be in business for at least six months and have annual revenues of at least $100,000. You’ll also be asked to provide collateral or a cash down payment if your credit is less than stellar or have a co-signer with good credit apply with you.
Lenders may also require a UCC filing, which may affect your business credit report or your ability to qualify for other financing.
The minimum credit score for food truck loans varies, too, and your interest rates and fees will be less the higher your personal credit score is. You may also be able to have a smaller downpayment if you have a better credit score. A score between 550 and 640 is the minimum for most lenders.
Bad credit won’t necessarily keep you from getting financing, especially if you have something of value for collateral. For example, loans for equipment and the vehicle may be easier to qualify for since the truck and the equipment are valuable collateral.
Your Loan Partners – Food Truck Financing Specialists
Your Loan Partners is your trusted food truck financing partner. We’re financial experts with a deep knowledge of the options available for small business owners and food truck operators just like you. We can guide you towards the best loan options for your food truck, helping evaluate the terms and conditions for each financial institution. Your client care representative can help find food truck financing with the least amount of risk for you personally. Give us a call today or use our online contact form to schedule your personal consultation today!