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Best Food Truck Financing Options & Loans For Good & Bad Credit

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Food Truck Financing Options & Loans

So you want to buy a food truck. Maybe you were inspired by an episode of Bob’s Burgers and wanted to try your hand at the industry, or maybe you had something delicious at your local Food Truck Friday event and now you want to be a part of that community. No matter what your reason is for diving into the food truck industry, one thing is certain: Starting up a food truck takes cash -- cash that you may not have immediately on hand.

What is a food truck loan?

A food truck loan functions similarly to a business loan. This can come in the form of a business loan from a traditional or online lender, the Small Business Administration (SBA), a line of credit or even a crowdfunding investor. Even if you’re a brand new business owner, the wide variety of financial products available to borrowers these days gives owners across a range of financial qualifications the opportunity to give their dream business a shot. 

How Much Money Will I Need To Invest In A Food Truck?

Most food truck businesses see startup costs ranging from $50,000 to $275,000. When it comes to starting a food truck, there are four main categories of expenses. 

#1. The food truck. 

The butter to your bread as a food truck business will be your food truck. If you plan to purchase a new truck you can expect to spend between $50,000 to $175,000. If you can find a used truck you can expect to pay between $30,000 to $70,000. The four main determinants of the food truck investment are the condition (new or used), equipment included, size, and location of purchase. In some cases, you can rent a food truck which can reduce overhead significantly. On average renting costs between $2,000 to $3,000 per month with a six month or longer lease. 

#2. Food equipment and decor. In most cases, food trucks are step vans that need to be customized to meet the needs of food service. If you can find a used truck, you can save money on customizing the truck. If you’re starting from scratch you’ll need to set up electrical wiring, frame the interior, cut holes for serving and ventilation, finish the walls with fireproof material, design the outside of the truck, and so forth. There’s several steps, all of which require professional help. There are companies that can help with each step of the process, but this will cost extra. 

#3. Commercial kitchen space and parking. 

Most food trucks have a commercial kitchen space where they prepare and store food. This space is known as a commissary space. Some cities require food trucks to have a commissary arrangement as part of the food truck application process. This prevents food trucks from being run out of home or other uninspected or unsafe food spaces. Commissary spaces can run up to $1,500 per month and are in high demand. There may be a wait list to secure a space. If you’re unable to secure a space, consider renting from another business with a certified commercial kitchen space. Parking will also need to be considered. Commissaries may offer parking for an additional fee. 

#4. Permits and licenses. 

Like any business, owning and operating a food truck will require licensing and permitting. In fact, with a mobile business you need even more permitting. Many permits and licenses come with annual fees that can range from a few hundred dollars to $1,000+ per year. In most cities you’ll need the following:

  • Business certificate
  • EIN (Employer Identification Number)
  • Vehicle license
  • Seller’s permit 
  • Health permit
  • Fire inspection

Getting a food truck business up and running is much faster than a traditional restaurant in most cases. This means you’ll be on the road to earning a profit sooner. However, you’ll also need to prepare to cover the startup costs and operate at a loss until you can breakeven and then become profitable (if all goes as planned). To survive the first 1.5-2 years (the time it takes most food trucks to breakeven) you’ll need contingency funds and probably financing to survive. It’s a good idea to have liquid assets in the event things don’t go as planned. 

How Much Money Can A Food Truck Business Make?

Food trucks are a fun and trendy business attracting entrepreneurs all over the world, but are they really profitable? If run properly, food trucks can be a lucrative venture. On average, food trucks make between $250,000 to $500,000 annually. This breaks down to a range of $20,000 to $42,000 per month. Of course there are expenses too. These averages are based on total sales before expenses. Operating costs are generally 85% to 90% of monthly sales for a profitable food truck business. Operating costs can range from $13,000 to $65,000 per month and can include the following.

  • Commercial kitchen ($1,500 per month)
  • Parking ($500-$1,000 per month)
  • Marketing ($500-$5,000 or 2.6% of sales per month)
  • Insurance ($500-$8,000 per month)
  • Labor ($2,500-$25,000 or 24%-40% of sales per month)
  • Utilities ($1,000-$1,200 per month)
  • Food costs ($5,000-$25,000 or 30%-35% of sales per month)
  • Loan repayment (if applicable)

Once a food truck business is profitable, the owner can consider taking a salary. While you can decide what’s appropriate, food truck owners make between $24,000 to $153,000 annually across the nation. Generally, the food truck owner’s salary will be less than half of the profit. 

But before you jump to being profitable, you’ll need to know when you can expect to breakeven. In most cases, it takes food trucks 1.5-2 years to break even. Timelines can vary depending on the business and region’s KPIs. Investing time into forecasting breakeven is critical to ensure you have enough contingency funds and to repay financing on time.

Can you get a business loan for a food truck?

If you’re wondering if you can use a standard business loan to finance a food truck, you’re in luck. Because a food truck qualifies as a business, you’ll be eligible to receive a wide variety of funding, including traditional business loans and SBA loans. 

Can you get a food truck loan with bad credit?

Even if you have bad credit, it’s still possible to fund your next culinary endeavor. While your credit score is often the biggest factor in determining if you can qualify for a loan or not, there are still several alternative lenders who consider your application on a holistic basis, taking into account your business plan, annual revenue, and past repayment history. 

What Are The Loan Options For Food Truck Financing?

Starting a food truck usually requires some type of financing. With no proven sales or an established business, it can be hard to qualify for traditional business financing. Food truck entrepreneurs often take a personal loan to cover some startup costs. Once the food truck is open and generating sales, they can graduate to business financing. Alternatively, business owners can borrow against their home (if they own one and have equity in it) to secure funds to start a food truck business. Here is a run down of some types of food truck financing:

  • Personal loans: For new businesses that may or may not have their window open, a personal loan can provide needed funding. While it’s secured based on the personal creditworthiness of the application, it can be used for starting a business. Personal loans are usually in amounts of $100,000 or less and do not require collateral. They are fairly easy to qualify for and funds can be received quickly. 
  • SBA loans: SBA (Small Business Administration) loans can be used to cover startup costs, working capital needs, expansion, and more. SBA loans are issued through SBA approved lenders and are backed by the federal government. These loans are designed to help small businesses succeed. The government and personal guarantee reduce the risk for the lender, this encourages them to work with small businesses. There are several types of SBA loans with varying requirements and loan amounts. While SBA loans may be easier to qualify for and come with competitive rates, they can take several months to secure.
  • Business term loan: A traditional business term loan may be hard for a brand new business to qualify for. Most lenders want to see at least 1-2 years in business with proven sales before approving a business loan. However, in some cases, with enough assets to back the loan or a personal guarantee, you may be able to secure a business term loan early on. Requirements will depend on the lender, and it certainly does not hurt to ask.

Best Food Truck Financing Options

Kabbage For Poor Credit

Loan Amounts $2,000 to $250,000
APR Range 24% to 99%
Repayment Terms 6, 12, or 18 months
Time to Funding A few minutes to several days
Credit Score 560+
Click “Check Rates” to apply to Kabbage

» MORE: Compare Bad Credit Business Loans

Pros:

  • Easy, fast, online application
  • Kabbage Card option for more convenient access to cash
  • Low minimum annual revenue and credit score requirements
  • Easy for new businesses to qualify
  • No collateral required
  • Applications are reviewed on a holistic basis
  • No prepayment penalty

Cons:

  • Potential for APR as high as 99%
  • The lowest possible APR is 24%, whereas traditional loans may offer APRs as low as 7-10%
  • No early repayment incentive
  • Complex fee structure
Loan Amounts $1,000 to $100,000
APR Range 10.1% to 79.8%
Repayment Terms 3 to 6 months
Time to Funding A few minutes to several days
Click “Check Rates” to apply to FundBox

» MORE: FundBox Business Loan Review

Credibly

Pros:

  • Access to three different financial products
  • Easier for borrowers without strong credit scores to qualify
  • Easy, online application
  • Prepayment incentives
  • Lender is willing to work with borrowers who have declared personal bankruptcy
  • Wide range of loan amounts
  • Comprehensive customer service
  • UCC-1 lien is not required on loans less than $100,000

Cons:

  • Origination fee of 2.5%
  • Potential for triple-digit interest rates
  • $25 insufficient funds fee for bounced payments
  • Shorter loan terms
  • Daily or weekly repayments

How can you buy a food truck with no money?

Even if you don’t have much cash in your pocket, it’s still possible to find the funding to purchase a food truck and all of the necessary supplies. It may be difficult to qualify for a traditional loan if you’re not already an established business owner, so considering other methods such as equipment financing, which allows you to use your purchase as the collateral for a loan, or using a business line of credit that allows you to gradually increase the amount of cash that you have access to, can help you buy the food truck of your dreams even if you’re short on funds. 

Equipment Financing For Food Trucks

Pros:

  • Quick access to cash, with many online lenders offering turnaround times of just one to two business days
  • Most online applications are quick and easy, with limited paperwork
  • Equipment serves as the collateral for the loan
  • Full ownership of equipment

Cons:

  • Equipment could become obsolete by the time the loan is fully repaid
  • Equipment can depreciate quickly
  • More expensive than purchasing equipment outright

» MORE: Equipment Financing Options

Loan Amount: $10,000 - $350,000
APR Range: 8.00% - 25.00%%
Time to Fund: Typically 7 days
Loan Term: Up to 3 years
How To Qualify: 680+ Personal Credit Score
$250,000+ Annual Revenue
Great Option For: Borrowers With Good Credit
Short & Medium-Term Financing
Click “Check Rates” to apply to Credibility Capital


Term Loan
Loan Amounts $2,000 to $250,000
APR Range 24.00% to 99.00%%
Repayment Terms Up to 3 years
Time to Funding Typically 1 - 5 days
Click “Check Rates” to apply to StreetShares

Loan Amounts $5,000 to $500,000
APR Range As low as 9.99%
Repayment Terms Term loans up to 3 years
Time to Funding As fast as 1 day
Click “Check Rates” to apply to OnDeck

» MORE: OnDeck Business Loan Review

Crest Capital

Pros:

  • Access to up to $500,000
  • Repayment terms as long as 74 months
  • No liens or collateral required beyond the equipment financed
  • Applications evaluated within four hours

Cons:

  • $275 administrative fee
  • Difficult for applicants with average credit to qualify, with a minimum required score of 650
  • Difficult for new businesses to qualify, with a minimum time in business requirement of two years

Lendio

Pros:

  • Potential access to up to $5 million
  • Borrowers have access to several different lenders through just one application
  • Easy for new businesses or borrowers with low credit to qualify
  • Loans take as little as a few business days to fund
  • Fast, easy online application that can be completed within minutes

Cons:

  • Potential for high interest rates and fees
  • Hard credit checks for some loans
  • Potential for short, inflexible repayment terms

Business Lines of Credit

Pros:

  • Evens out cash flow between lulls in income
  • Borrowers only pay for what they use
  • Can improve overall credit score

Cons:

  • Can be more expensive than a standard term loan, with transaction, withdrawal, and maintenance fees
  • May be more difficult to qualify for than a term loan
  • Does not provide access to as much cash as some term loan lenders

» MORE: Business Line of Credit Options

SBA Microloans

Pros:

  • Faster funding time than a standard SBA loan, with most becoming available within just one month
  • Provide lower interest rates than many traditional and online lenders
  • Can be used for a wide variety of business purposes

Cons:

  • SBA Microloans come with spending restrictions that regular term loans don’t come with
  • Longer time to disbursement than with online lenders
  • Borrowers must meet SBA as well as lender qualifications

» MORE: SBA Loans

Business Credit Cards

Pros:

  • Borrowers only pay for what they use
  • Provides more convenience than a traditional or online term loan
  • Allows businesses to pay for unexpected expenses without having to wait for a loan to fund
  • Timely repayments can improve overall credit score

Cons:

  • Transaction, withdrawal, and maintenance fees may increase the overall cost of funding
  • Business credit cards often have stricter qualification requirements than term loans
  • Does not provide access to as much cash as some term loan lenders

» MORE: Business Credit Card Options

Crowdfunding

Pros:

  • Usually cost less than term loans
  • May provide access to larger amounts of cash than other methods, with the help of committed investors
  • Can be a good option for new businesses that do not yet have strong financial qualifications or multiple years of operational history

Cons:

  • Dealing with multiple investors can become time consuming
  • Investors can back out, meaning that the cash flow isn’t always guaranteed
  • Funding can be dependent on hitting financial targets, so the stakes are higher to keep the funding

Conclusion

Starting a new food truck can be a fun and exciting process, whether you’re doing it for the first time or simply expanding an already existing chain that you own. Either way, you’ll likely need a bit of cash assistance on the way. If you’re looking for help making a down payment on the truck or initial supplies themselves, an SBA microloan or online term loan could be the best way to get access to that funding in one lump sum. However, if what you need is a bit of cyclical assistance to help with routine purchases along the way, a business line of credit would be ideal. No matter what your financial situation looks like, make sure to evaluate a variety of loans and offers before making the final decision on the form of financing that’s right for you and your new business.

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