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Updated on Monday, April 29, 2019
If you’re a foodie with an entrepreneurial streak, you might be considering opening a food truck business. Food trucks have become a trendy small business option, with the industry seeing nearly 7% in growth the past five years, according to IBISWorld. While a food truck could be a better investment than a full-scale restaurant, you may need food truck financing to cover the costs of staying on the road.
Food trucks are typically less expensive business ventures than restaurants. Depending on the complexity of your truck, you could start a business for less than $200,000, while it could cost more than $1 million to open a restaurant. A used food truck could cost between $40,000 and $80,000. Separately, permits, licenses and legal compliance average about $28,000 annually, according to the U.S. Chamber of Commerce Foundation.
Though inexpensive compared to a restaurant, the cost of running a food truck business can quickly grow. Inventory needed to cook and serve your food can exceed $1,000, and fuel and maintenance expenses can add up, too.
Food truck financing can come in handy when you can’t cover all these costs with your own money. You could fill out a form at LendingTree and receive loan offers from lenders, depending on your creditworthiness. MagnifyMoney is a LendingTree company.
Types of financing for food trucks
The costs associated with running a food truck make some financing options more suitable than others. Here are a few products that would be fitting for a food truck business.
Food truck equipment loan
Equipment financing can be used to buy business assets, including ovens and cooking supplies. The equipment acts as collateral on the loan, making it less risky for the lender and more accessible for the business owner. However, most lenders would require you to make a down payment of 10-20%, which could be a significant amount if you’re financing expensive equipment. You could also use an equipment loan to purchase the food truck itself. In that case, the vehicle would secure the loan.
An equipment lease may be a better option for assets that often need to be replaced. You would essentially pay rent to use the equipment, then return it or purchase it for a discount when the lease ends.
You could use a short-term loan to cover any food truck expenses, likely paying back your debt in three to 18 months. Short-term loans typically come in smaller amounts and may have high interest rates, depending on the length of your repayment term, your business’s cash flow, your credit score and your overall risk as a borrower. A lender could require you to offer collateral as well. Payments for a short-term business loan could be due on a daily, weekly or monthly schedule.
Business line of credit
A business line of credit would allow you to withdraw funds to pay for business expenses, including kitchen supplies and ingredients, on an as-needed basis. When you repay what you borrow, your full credit amount becomes available again. You would only pay interest on what you borrow, though your interest rate may be higher based on your credit history. Low-credit applicants typically have a better chance of being approved for a line of credit than a traditional business loan, making it an attractive option if you’re looking to improve your credit profile. However, you may need to offer collateral to secure financing. You could also be required to pay a maintenance fee to keep the credit line open.
Microloans, which are disbursed in small amounts up to $50,000, provide working capital to cover business expenses, such as inventory, supplies or machinery. Microloans are tied to community development efforts and are typically issued to certain types of business owners — such as women, minority, veteran or low-income entrepreneurs — depending on the lender’s priorities. Collateral is usually required when applying. If you qualify, a microloan can help build your business credit profile and improve your chances of borrowing larger amounts in the future.
Where to find food truck financing
When searching for financing for your food truck, consider products from these business lenders.
U.S. Small Business Administration
The SBA microloan program backs business loans up to $50,000 that are issued by third-party lenders. Microloans are usually available from community organizations looking to lend to businesses that will make a local impact. SBA-backed microloans can be used to purchase supplies, fixtures and machinery, or to cover working capital needs. Repayment terms are generally up to six years, with interest rates between 8-13%.
Credibly is an online alternative business lender offering flexible, short-term funding to small business owners. Its working capital loan is available to business owners with a FICO Score of 500 or higher, six months in business and $15,000 or more in average monthly bank deposits. Qualified applicants can borrow up to $400,000 with terms spanning 6 to 18 months. Credibly uses factor rates to express interest on loans, and you would need to multiply your factor rate by your loan amount to calculate the total amount that you would owe. It advertises factor rates as low as 1.15. Payments would follow a daily or weekly schedule. You could receive funds as soon as the same day, and you could use the money to cover any business expense.
Online lender Kabbage provides business lines of credit up to $250,000 for qualified borrowers at APRs between 8.00% – 24.00% To be eligible, you need to be in business for at least a year with $50,000 in annual revenue or $4,200 in monthly income during the past three months. Each time you draw from your line of credit, you would have 6 or 18 months to pay back the amount you borrowed. You would owe either one-sixth or one-twelfth of your debt every month, plus a monthly fee. Fees range from 1.25% - 10.00% based on your business performance, but that would be included in your APR.
Food truck owners who use PayPal to accept payments could take advantage of PayPal Working Capital, a loan program that allows you to borrow money based on your sales. You could borrow up to 35% of your annual PayPal sales, but no more than $125,000 for your first loan. To collect repayments, PayPal would take a percentage of each sale you make through PayPal. The higher your sales, the faster you would repay your food truck loan, though you would need to repay a minimum of 5% or 10% every 90 days. PayPal charges a fixed fee that is based on your total loan amount and the percentage that you choose for PayPal to take out of your daily payments, as well as your PayPal sales history.
To be eligible for PayPal Working Capital, you would need to have a PayPal Business or Premier account for three months or more. If you have a Business account, you’d need to process between $15,000 and $20 million in annual PayPal sales. If you have a Premier account, you would have to process between $20,000 and $20 million in annual PayPal sales. You would also need to pay off an existing PayPal Working Capital loan before being approved for another.
Crest Capital is an online lender that offers equipment financing up to $250,000 for eligible small business owners. You could finance the full cost of new or used equipment, or obtain an equipment lease. Repayment terms range from 24 to 72 months. Your industry, time in business, business credit history and equipment type would affect your eligibility, though specific requirements aren’t listed online. You could receive same-day approval. Crest Capital also offers vehicle financing that could help you purchase a new or used food truck from a dealership or private seller.
Keep your food truck rolling
When you start a food truck business, expenses can quickly pile up. From kitchen supplies and ingredients to fuel and vehicle maintenance, the cost of running the business may exceed the money in your bank account.
Financing from small business lenders can help you keep your food truck operating. Whether you take out a short-term food truck loan or line of credit to cover general expenses, or equipment financing to pay for specific items, the range of options can help you cover financial gaps in the business.
Consider strategizing to keep your business costs low, including incorporating versatile and seasonal ingredients in your menu to avoid overspending on groceries. You could also purchase inventory in bulk with other food truck owners in your area to bring down costs. In some cases, it may be more economical to rent equipment or buy used tools and machinery rather than purchasing new assets.
You may be able to find a lender who can provide a financing option that allows you to access what you need at a price you can afford. Be sure to shop around to find a lender that offers interest rates and repayment terms that work for your food truck business.