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Small Business

The Ultimate Guide to Secured Business Loans

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Opening or expanding a small business usually involves a significant financial investment, whether it’s paying for building renovations, computers or additional inventory. For new business owners with ambitious plans, this type of investment often requires more capital than they have on hand, and existing businesses may not have enough cash available to grow while continuing to pay regular operating expenses.

One common solution is a business loan, which can be secured from banks or other private lenders for more favorable terms and lower interest rates than unsecured loans.

In this guide, we’ll cover:

Part I: Understanding Secured Business Loans

USBL Table

Business loans typically are secured or unsecured, and the type of loan that you can qualify for will depend on market conditions, your credit score, your assets and your business’s profitability and outlook.

Secured business loans require collateral – as much as 80 percent or more of the loan’s value, which shows that the borrowers can repay the loan if the business fails or the loan goes into default. That means that business owners need to show the lender that they are willing to take on significant risk, including the possibility of losing their house or business assets, to secure financing for their business venture.

Unsecured loans do not require collateral and typically are easier to qualify for. For secured business loans, on the other hand, lenders look for applicants who are in a position to pay the loan back regardless of the business’s success and are willing to risk their own assets for the business. Applicants also need to have good credit and businesses that are feasible in the current market.

“That’s why [lenders] want people to have a proven track record of doing things responsibly,” says Roman Starns, a business consultant with the Louisiana Small Business Development Center. “[Borrowers are saying,] ‘look, I’m willing to put my home equity in, I’m willing to pledge some real estate, I’m willing to put 20 percent down in cash to make this business work.’

“That’s going to mean they are more likely to run that business well and do well at it. If someone puts nothing into it, they have nothing to lose but their credit.”

Lenders also will investigate whether the business is viable in the current market. An entrepreneur who wants to open, for example, a VHS repair shop could have a solid business plan and financial backing, but lenders likely will reject the application.

“They are going to look at the market conditions for this loan as well,” says Starns, who has 20 years’ experience as an entrepreneur and small business owner. “No one has VHS anymore. They want to see that this is a workable business and the financial projections on it show that, within reason, you’re going to be able to pay back everything and the business is going to make it. It’s not as easy as, ‘Oh, I have a great idea that’s going to work,’ and you go get a loan for the money.”

Part II: Types of Business Loans

Traditional lending institutions, such as banks, offer standard secure business loans through a simple application process. Borrowers can apply in person or online, and bank professionals will work with the borrower on the terms and amount of the loan. For applicants and businesses in good financial shape, this process can be quick and easy.

The type of business loan a borrower applies for will depend on their need for cash, financial situation and availability of collateral. Here are some options for business owners considering secured business loans.

Term loans

Term loans are best for business owners who have a specific, one-time need for cash, such as buying an expensive piece of equipment or financing a major building renovation. A term loan will provide the money up front in a lump sum, and the borrower pays it back over time. These loans typically are approved for established businesses that need extra cash to expand or enhance their services.

The length of the repayment period will depend on the purpose of the loan and the amount of collateral the borrower can offer. Until recently, term loans were offered between two and five years, but now they can be repaid in as little time as six months or as long as 25 years.

Deciding which type of term loan you need depends a lot on how soon are prepared to repay the loan.

Up to 2 years: Short-term loans

Short-term loans, which are best for paying for a pressing business need, must be paid back quickly. Terms might require daily or weekly payments, which allow the borrower to pay back the money quickly and minimize financing costs.

2 to 5 years: Medium-term loans

Medium-term loans are ideal for companies that are growing and are optimistic about their future. These loans, which usually are repaid in two to five years, allow business owners to put plans for expansion into action immediately rather than waiting to save enough money to buy equipment or other assets that will allow the business to grow. Medium-term loans can be unsecured or secured, and approval is based on the applicant’s credit score and collateral, if required.

10-25 years: Long-term loans

Long-term loans are designed for businesses that can project growth years. The amount of these loans, which have repayment terms ranging from 10 to 25 years, is dependent on the need, and they can range from several thousand dollars for a small equipment purchase up to $1 million for buying a building or property.

SBA-guaranteed loans

It is a common misconception that the Small Business Administration, a government agency that provides assistance to small businesses, loans money to businesses. Instead of making loans directly, the SBA creates guidelines for loans and then guarantees to its lending partners that their loans will be repaid.

The SBA works with several different kinds of institutions, including traditional lenders, microlending institutions and community development organizations. When a business applies for an SBA loan through one of these partners, the partner provides a loan that is structured according to SBA rules and is guaranteed by the SBA.

Because the SBA is a government organization, its rules and practices can change as government fiscal policies adapt to the current economy. It’s important to always check with the SBA for its most current policies and loan programs.

The SBA typically will not offer loans to businesses that can secure financing on their own, and it does not offer grants to new or expanding businesses. It does provide several programs to help borrowers finance different aspects of a business.

  • General small business loans: These loans, called 7(a), are the SBA’s most common loan program and can be approved for up to $5 million, although the SBA states that the average 7(a) loan for fiscal year 2015 was about $371,000. These loans are assigned low interest rates, and the SBA will guarantee as much as 85 percent of the loan up to $150,000. Seventy-five percent of loans over $150,000 are guaranteed. The loans are generally available to small businesses that do business in the United States and have already used alternative funding sources, such as personal savings.
  • Microloans: Available for startups and business expansions, SBA microloans are provided through intermediary nonprofit community organizations for up to $50,000. The average microloan is $13,000, according to the SBA, and interest rates are between 8% and 13%. Business owners usually are required to pledge collateral and a personal guarantee.
  • Real estate and equipment loans: The CDC/504 program offers loans for buying land, improving property, constructing and improving buildings, and purchasing equipment and machinery. Successful applicants will have a feasible business plan, no available funding from other sources, good character, and business projections that show an ability to pay back the loan. Loan amounts are based on how the business will use the money and how closely the business’s plan meets the program’s goals.
  • Disaster loans: When businesses suffer losses due to a declared disaster and are in a declared disaster area, SBA low-interest disaster loans are available to replace or repair real estate, personal property, inventory, business assets, and equipment and machinery damaged in the disaster. Owners of businesses of all sizes can apply online, at designated disaster recovery centers, or by mail, and the loan can be repaid in monthly payments or a lump sum. Loans can be approved for up to $2 million.

Business line of credit

A business line of credit works much like a business credit card, allowing the business to access funds as needed and make minimum monthly payments to repay the borrowed money. Through this type of lending, business owners can set their own borrowing and repayment schedules, depending on their cash flow.

Lines of credit are appealing to businesses because they are easier to obtain than standard secured loans, and the business owner does not pay interest until they withdraw money from the credit line. This type of borrowing is best for established businesses with optimistic outlooks, as struggling businesses in danger of failing may leave the owner personally responsible for unpaid debt.

Chris Kline, co-owner of a pillow manufacturing business in Bucks County, Pa., says his business recently took out a $50,000 line of credit to buy more manufacturing equipment to meet increasing demand for their products. Kline and artist Eric Fausnacht opened the business manufacturing pillows printed with Fausnacht’s artwork five years ago, and Kline helped move the business from arts and crafts shows into the wholesale market.

The application process for a line of credit included a meeting with a bank official, who visited the company on-site and talked at length with the business owners about their company and business projections.

Kline, 45, says that he prefers to borrow conservatively, and he and Fausnacht pledged business assets rather than personal assets to secure the line of credit. While unsecured lines of credit are available for maximums under $100,000, secured lines of credit typically have lower interest rates and higher credit lines.

“I’m not looking to borrow more than 10 or 15 percent of annual sales,” Kline says. “And I’m confident we will be able to pay that back if something unforeseen happens.”

The new equipment purchased with the line of credit already increased production and revenues enough that Eric & Christopher now has eight or nine full-time employees and additional part-time staff.

Equipment loans

Many businesses require expensive equipment, such as an X-ray machine or a tractor, to get started. Without revenues from the business, a business owner may not have the capital to pay for the equipment. An equipment loan, which several types of lenders offer, can help a business buy the equipment it needs to begin or expand operations.

Unlike many other types of business loans, the equipment can serve as collateral for the loan and makes the loan easier to obtain. If the borrower can’t make the payments, the lender will repossess the equipment and sell it to recoup some of its losses. Applicants for equipment loans should have good credit and cash available for as much as a 20 percent down payment.

Equipment loans typically come with low interest rates and manageable payments, making them good tools to help businesses afford expensive purchases. Business owners must pay off the entire loan, even if the loan repayment term is longer than the life of the equipment.

Invoice financing (factoring)

Invoice financing, also called invoice factoring, is an easier way for an established business owner to raise capital than with a standard secured loan. This process allows business owners to sell their outstanding invoices at a discount to a third party, which then collects on them to repay a single-payment loan issued to the business owner.

These types of loans are beneficial for business owners who need cash faster than the repayment deadline on the invoices. Invoice financing can cover cash flow gaps and payroll, for example, and it is low risk because the money comes from completed sales rather than sales projections. The downside is that invoice financing requires substantial fees.

Inventory financing

Businesses that depend on a steady flow of inventory can use inventory financing to keep their shelves stocked or to buy more inventory for seasonal sales increases. Inventory financing also can help small businesses with cash flow during periods of slow sales.

Inventory financing provides a revolving line of credit that business owners can draw on as needed. The business owner pledges existing inventory as collateral for the loan.

Part III: How to Secure Your Business Loan

There are several ways to secure a business loan. You can use hard assets for collateral, like a house or a boat; paper assets, like investments and savings accounts; or your own inventory and invoices. We’ll dig into types of ways to secure your business loan here.

Securing your business loan with collateral

If you or your business has significant assets, you likely are a good candidate for a secured business loan. Lenders will consider the amount of collateral you have when deciding on your loan application, as they want to reduce their risk in case you can’t repay your loan. If you default, lenders will take possession of collateral and sell it to regain at least some of the money they lent you.

This is where risk can come in. While your business may be secure when you apply for the loan, downturns in the market or other unexpected events may push a business into hard times. For example, if an unsavory business moves in next door, your customer traffic may slow significantly. If a machine breaks down or needs to be replaced, production could be slowed and orders unfulfilled. Theft and natural disasters that destroy your business’s property also can severely reduce revenues and lead to unexpected expenses.

If unforeseen circumstances result in a business owner being unable to make loan payments, the lender can seize collateral. As a result, a business owner can lose their house, their car or their savings. If the collateral is property belonging to the business, seizure can be just as devastating, and losing significant business assets can cause the business to close.

The payoff for a secured loan, though, will be more flexible loan terms and significant financial savings over time. Borrowers with secured loans will pay lower interest rates and fewer fees, and they may not be penalized for paying off the loan early.

Hard vs. paper assets

Lenders typically will accept personal and business assets, which a business owner can pledge as collateral if they want to protect their personal property. Either way, borrowers must promise the lender something valuable that can easily convert to cash in the case of default to recoup losses.

Borrowers can pledge two types of collateral: hard assets and paper assets. Hard assets include houses, vehicles, boats and land, while paper assets include stocks, savings, investments, insurance policies and bonds. Lenders also will happily accept cash accounts as collateral, but they will not consider retirement accounts, such as 401(k) plans.

Business assets that qualify as collateral include inventory, insurance policies, accounts receivable, machinery and equipment, and unpaid invoices.

Some lenders may attach a blanket lien to a loan as collateral, and borrowers should be aware of the sweeping consequences this can have if the loan goes into default. Blanket liens give lenders a legal claim to all of your assets, business or personal, if you stop making loan payments.

Securing your business with a personal guarantee

In many cases, borrowers will be asked to provide a personal guarantee for a secured business loan. This requires the signatures of all principal owners, ensuring that they have assets they can put up as collateral. While the signatures are on unsecured promises, a personal guarantee does allow the lender to take signers’ assets if the loan is not paid. If you don’t have enough assets to personally guarantee a loan, business consultant Starns recommends finding a business partner who does.

Personal guarantees are different from collateral in that they give lenders access to a wide range of assets, while collateral typically specifies assets the lender can seize in case of nonpayment.

It’s important to know what you’re signing when offering a personal guarantee. If you do default on the loan, the lender may release you from the personal guarantee if you ask, and you also could try to arrange with the lender to first sell business assets to satisfy the outstanding debt before they seize your personal assets.

Part IV: Shopping for a Secured Business Loan

Borrowers can apply for secured business loans at several types of financial institutions. Banks and credit unions offer standard application procedures that include filling out an application in person or over the phone, discussing terms and the loan amount with a loan officer, and working with a business specialist to access funds if the loan is approved.

Business owners can apply for SBA loan programs through partner lenders, which can include banks and community organizations that work within SBA guidelines. Borrowers will need to download and complete an SBA loan application and be prepared to submit documents such as personal background and financial statements, business financial statements, and income tax returns. A list of SBA lenders is available on the agency’s website.

Online lenders typically have faster application processes and can get money to borrowers quickly, but they often come with higher interest rates than traditional lenders. Some online lenders often charge origination and monthly maintenance fees as well.

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Do your research

Before business owners begin shopping for a secured business loan, financial advisers recommend realistically assessing their business’s economic situation. Secured business loans come with great personal risk, as a failed business and inability to pay off a secured loan can cost a business owner significant personal or business assets. Online calculators can help borrowers estimate potential monthly payments and make good decisions about what amount of loan they can afford.

Bob Burton, a retired businessman who now volunteers as a mentor for the Charlotte, N.C., office of SCORE, a national organization that provides mentoring and education to small business owners, says he makes sure that clients understand the economics of their idea for a business.

“They have to make the call whether they want to put their money in it,” Burton says. “A lot of people don’t understand what’s involved in starting a business. It sometimes can look very simple, but it can be quite complex.”

Starns advises borrowers to think through how realistic their plan is, including whether they are truly committed to the endeavor and have enough experience to execute it, before taking on a secured loan.

“You’re risking a lot of things,” he says. “Owning your own business is rewarding, but it’s also risky and takes a special mentality to be able to do it.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marty Minchin
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Marty Minchin is a writer at MagnifyMoney. You can email Marty here


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Business Budget Template: What to Include

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Setting a budget for your small business can prevent excessive spending and put you on a path toward profitability.

An effective budget would show you how much you need to generate in sales to cover costs, as well as how much you can afford to reinvest in the business. Additionally, you could use a budget to figure out when you’d have the means to hire employees.

It may seem like a daunting task to comb through your business’s finances but sitting down to create a budget for your small business would be time well-spent. Continue reading to understand what budgeting entails and how to find a business budget template to get started.

Why does your business need a budget?

A business budget puts your monthly expenses in writing, including your office lease payments, travel costs, website hosting fees, marketing expenses and the cost of supplies. Documenting these regular costs would help you set aside money each month to cover the bills and spend only what is left over.

A budget would give you a detailed look at where your money is going. You would be able to see how much you need to earn in sales to not only break even but become profitable.

As your business changes over time, your budget can help you be flexible in your spending. If a big, one-time expense comes up, you could look at line items on your budget to see where you could make cuts to cover the unexpected purchase.

Your budget should include all business expenses, even the small ones, so you don’t underestimate your financial needs. In the next section, we’ll discuss how to find a budget template for your business.

Creating your business budget

Before writing your business budget, there are a couple of financial statements you need to understand related to how your business earns and spends money.

Profit and loss statement

A profit and loss statement, or income statement, would illustrate whether your business is making or losing money. You would need to subtract your expenses from your income to determine this. If your revenue exceeds your costs, then your business is profitable. But if costs are higher than revenue, then you’re likely making a loss.

When doing the math, include all recurring income and expected income in your total revenue. Same with expenses – include recurring and fixed costs as well as one-off purchases. Also include payroll, debt repayments and depreciation of business assets in your total expenses.

Once you’ve determined if your business is making a profit or a loss, you could decide how to move forward with your budget. You could set up the budget so you save money to reduce spending, or invest in growing your profits.

Balance sheet

Your balance sheet would show your assets, liabilities and overall worth of your business. To find the difference between what your business owns and owes, you would need to subtract monthly liabilities from monthly assets.

Your total assets should include the value of everything the business owns, such as real estate or equipment, as well as money in your business bank account and outstanding invoices.

Your total liabilities should be comprised of any loans or other business debt, bills that have not yet been paid and taxes due in the near future.

The balance sheet allows you to see all assets and liabilities to figure out the net worth of the business. This information would help shape your budget.

Writing your budget

The information on your financial statements would inform your business budget. Consider creating a spreadsheet separating your costs into two categories to track spending: one-time expenses, like equipment, and recurring costs, like monthly rent and utility bills.

You could create an individual sheet for each month, or combine data from each month on one sheet to track your yearly spending. Your spreadsheet should also include your projected sales, revenue and profit so you can compare your costs to your income.

Once you’ve filled out your spreadsheet, you could adjust the numbers to illustrate various scenarios. For instance, you could evaluate how increasing or adding a certain expense would impact your revenue or profit.

Choosing a business budget template

After becoming familiar with your monthly expenses and income, you would be better prepared to determine what’s essential to your budget. You could create a weekly or monthly budget, or both, to keep your spending on track.

Here’s an example of what your budget may look like:

Various websites offer online templates, often for free. Here are a few available to download:

  • Monthly budget template from QuickBooks– This template works with Microsoft Excel and Google Docs. It tracks monthly expenses and one-time expenses on a single sheet to calculate total monthly costs. This spreadsheet is designed for new businesses looking to estimate initial startup costs.
  • Monthly budget template from Smartsheet – This template works with Microsoft Excel or the Smartsheet platform. It includes sheets for tracking one type of income source and one type of expense as well as cash transactions each month. Smartsheet also provides multiple templates for various needs, such as a 12-month budget, a specific project budget and a first-year budget.
  • Money management template from Vertex – This template works with Microsoft Excel and Google Sheets. It records spending and income to create a yearly budget. Vertex’s template includes worksheets for service-based and product-based businesses.
  • Small business budget from Capterra – This template also works with Microsoft Excel. Capterra’s budget tool allows you to input your yearly spending goals to calculate what your financial activity should look like each month. You can update your spreadsheet with your business’s actual monthly results to see if you’re on track to meet your goals.
  • Small business budget management templates from – provides links to 15 downloadable Microsoft Excel spreadsheets. The templates are designed with specific budgeting goals in mind, like budgeting for marketing or manufacturing expenses, setting a business travel or event budget or creating a rolling budget to forecast future spending.

When filling out your business budget, most templates would require you to determine the number of months the budget will cover. Then, you would enter your costs and income into their respective fields on the spreadsheet. An embedded formula would automatically populate total amounts based on the information you entered.

Setting a budget and sticking to it

A premade template would take much of the legwork out of making your business budget. But you would still need to interpret those numbers to make changes within your operation.

You could refer to your budget to adjust variable expenses to offset any anticipated changes in your cash flow. You should also check your budget before taking on a major expense, like purchasing equipment or expanding the business, to make sure it fits within your current spending plan.

For startups, a business budget can be crucial. New business owners often underestimate startup costs and setting a budget can help you stay on track. You also may have to submit a budget as part of your business plan when applying for loans or investor funding.

Any business can benefit from budgeting, as it would help you make strategic decisions about the future of your company. You could use your budget to explore different scenarios, plugging in expenses to see what your business can afford.

Your business budget is a flexible document and can change as your business evolves. Maintaining a budget as you grow would help you understand your spending habits and revenue patterns, so you can feel comfortable making purchases that benefit the business.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
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Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]


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How to Start a Food Truck

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Food trucks are the focus of festivals, neighborhood events, movies and TV shows. And their trendy appeal doesn’t seem to be diminishing anytime soon, which means there’s room for growth if business owners are willing to do the work it takes to stand out in a crowd.

The food truck industry in the U.S. is expected to reach $1 billion in revenue in 2019, according to IBISWorld, an industry researcher. Nearly 24,000 food trucks and their owners can benefit from increased consumer spending, but also must deal with increased competition.

“Probably a large misconception most people have is, first of all, that this is going to be easy,” said David Stuck, co-founder of The Tin Kitchen food truck in Charlotte, N.C.

Stuck is also the chief operating officer of Tin Partners, a food-services group that Stuck and his partner Nick Lischerong launched following the success of the food truck. Tin Partners offers catering and event planning services, as well as culinary consulting.

When Stuck and Licheron opened The Tin Kitchen in 2010 they had trouble finding places to park, as the food truck scene hadn’t yet taken off in the city and businesses didn’t want trucks on their property. Now, there are three Tin Kitchen trucks among the dozens of trucks driving around Charlotte, similar to cities across the country.

“Just be aware that there is a tremendous amount of competition at the moment,” Stuck said. “You better be able to cook good food and you better have a good plan or you’re going to flounder.”

7 steps to start a food truck

To get your food truck up and running, there are several steps to follow. Here’s how to get the process started.

How to Start a Food Truck

1. Set up your business entity.

When starting a food truck business, you would need to choose a structure, or entity, for your operation. The structure you choose would impact how much you pay in business taxes and whether you would be personally liable for the business.

A limited liability company, or LLC, is a common entity choice for food truck owners, said Zana Tomich, a business attorney and founding partner of Detroit-based law firm Dalton and Tomich. According to Tomich, an LLC isn’t as formal as other entities, like a corporation, but it would protect you from personal liability.

2. Check your state and city regulations.

As a mobile food establishment, a food truck may need to follow state and local rules, Tomich said. In her home state of Michigan, food truck owners not only need permits to operate in the state, but also local approval to set up shop in a specific city. Focusing on a single city, at least at first, might make the most sense for new food truck owners who may not have the resources to juggle multiple municipalities with different sets of rules.

“Usually food truck operators will focus on one place to make sure they’re within the bounds of the rules,” she said.

On average, food truck owners in the U.S. must complete 45 separate government-mandated procedures to start and maintain the business for one year. In that year, owners spend more than $28,000 on permits, licenses and ongoing legal compliance, such as regular safety and health inspections and vehicle registration, according to research from the U.S. Chamber of Commerce Foundation.

To obtain operational licenses, you would likely need to start with your state agency, which varies by state, Tomich said. In Michigan, food truck owners must first go to the state department of agriculture, but owners in other areas may need to start with their state’s secretary of state office, she said.

Next, your local health department would need to approve your food truck. Then, you’d need to make a visit to your city planning and permitting offices to get additional approval to park in certain areas of the city or on private property, Tomich said.

“Once the state permits are obtained, which are a little more cumbersome, going through the local permitting process is pretty straightforward,” Tomich said.

3. Purchase a truck.

Purchasing a used food truck is often an economical option for new business owners. You could find a truck for as low as $15,000 to $20,000, though it may not have the layout and equipment needed for the type of food you plan to prepare, Stuck noted. For instance, Stuck initially purchased a former barbecue truck, which wasn’t outfitted to make tacos, The Tin Kitchen’s primary offering.

“If you’re doing scoop-and-serve barbecue, that’s different than cooking things to order,” he said. “We sort of forced it to work.”

If you have a bigger budget, you could buy a custom truck from a food truck manufacturer. A brand-new truck could cost between $50,000 and $150,000, but you’d be able to design the kitchen layout and install equipment that works best for your business, Stuck said. You may be eligible for financing to ease the purchasing process — we’ll discuss financing options for food truck owners in a later section.

Your kitchen equipment would depend on the type of dishes you plan to sell. Common food truck appliances include:

  • Ovens
  • Fryers
  • Grills
  • Refrigerators
  • Pots and pans
  • Storage containers
  • Knives and other utensils

How you arrange your equipment is also crucial, said Stuck. Work stations should be organized in a way that allows you to quickly prepare and serve food to waiting customers. In addition to kitchen equipment, you would also need a point-of-sale system to take orders and a generator to power the truck with electricity.

4. Buy insurance.

Several types of business insurance policies exist to protect certain assets, like your equipment, inventory and personal property. According to Tomich, as a food truck owner, you should at least consider purchasing general liability insurance. General liability insurance protects business owners from property damage and bodily injury claims, and also covers costs involving claims of false advertising, libel and slander.

Business vehicle insurance or a commercial auto policy would also be a necessary purchase, as you would be required to provide collision and comprehensive coverage for the food truck. It could also cover any equipment that is permanently attached to the truck. If you have employees, you’ll likely be required to buy a workers’ compensation policy as well, to protect them if they are injured at work. Unemployment and disability insurance would also be required.

“When it comes down to it, it’s a vehicle,” Tomich said. “Accidents happen.”

5. Hire employees.

Unless you’re able to take orders, cook food and drive the truck yourself, you’re likely going to have to hire employees to help operate the business. According to Tomich, you would need to classify workers correctly in the eyes of the Internal Revenue Service or risk facing penalties. You can classify workers either as independent contractors or employees of the business, the latter of which would result in federal and state employment taxes.

But while it may be tempting to classify workers as contractors to avoid paying taxes on their earnings, you may end up owing back taxes if you misclassify your staff, Tomich said. If workers earn a regular wage at an hourly or weekly rate or have access to benefits like health insurance, they should be classified as an employee and not a contractor.

6. Develop your menu.

Your menu should include dishes that can be prepared in a tight space. You may want to consider items that can be made in advance or cooked quickly to prevent your customers from waiting outside your truck too long.

A new food truck owner could initially spend upwards of $1,000 or $2,000 on cooking supplies, including menu ingredients, cooking oil, spices, napkins, plates, cups and other serveware.

Wholesale food retailers like Restaurant Depot or Chef’Store are typical choices for food truck owners, Stuck said. You would likely need to stock up on supplies each day or every other day. Determining how much inventory to buy can be tricky, and you don’t want to make the wrong calculation, he said.

“That’s a very delicate line to walk,” he said. “If you buy too much, a lot of it can perish before you sell it. If you don’t buy enough, you’ll sell out of food.”

You could rent space in a shared commercial kitchen or commissary kitchen to store supplies and prepare food if you don’t have room on the truck. Most kitchens are fully equipped, and some are even specifically designed for food truck owners.

Propane is also necessary inventory for food truck owners to power gas stoves, water heaters or other kitchen equipment in the truck. Filling up once or twice a week is common practice, and you may want to plan around your busy days, said Stuck; for example, he noted that the Tin Kitchen trucks fill up on Mondays and Fridays, bookending the weekends. Businesses like U-Haul have propane refill stations onsite that food truck owners can use.

7. Find a place to park.

Once you have your truck, supplies and employees ready to roll, you would be ready to open your windows and start serving customers. Where you can park your truck would depend on local regulations and permits you’ve acquired, Tomich said. Be wary of private property, as some locations may require food trucks to get permission to operate on the premises, she said.

There may be rules about how close a food truck can park to schools, parks, restaurants, crosswalks, building entrances or another food truck. Some may even limit street parking or how many days in a row you can park in the same spot.

Community events can be valuable, according to Stuck. However, the growing number of food trucks has upped the competition for spots at large gatherings, he said. In some cases, you may have to pay a fee for entrance into the event. For instance, the International Night Market in Atlanta requires food truck owners to pay $1,000 for a space at the three-day event.

Financing a food truck business

From food to permits to propane to maintenance and repairs, the costs of running a food truck can quickly add up. Securing financing for your business could help you cover major expenses and allow you to reserve your daily operating capital, Stuck said.

If you need funding to keep your food truck on the road, consider these types of food truck financing that you could obtain from traditional banks or alternative business lenders.

Food truck equipment loan

Equipment financing can be used to buy tools like ovens and refrigerators, as well as the food truck itself. Many lenders categorize food trucks as equipment and you can secure a loan with the vehicle. Because the truck or other asset would act as collateral, an equipment loan is less risky for the lender and more accessible for you as the business owner. But you may need to make a 10% to 20% down payment when obtaining an equipment loan. If you need to finance equipment that you plan to replace often, an equipment lease may be a better choice. You would make payments to use the equipment for the length of the lease, then return the asset or purchase it for a discounted priced when the term ends.


Microloans are available in small amounts up to $50,000 and are usually reserved for community development efforts or certain types of business owners, such as women, minority, veteran or low-income entrepreneurs. Microloans can be used to cover working capital expenses like inventory, supplies or machinery, and you may need to offer collateral to secure funding. Microloans are also a useful tool to build your business credit profile so you could apply for a larger amount of financing in the future. The U.S. Small Business Administration has a well-known microloan program.

Short-term loan

Short-term business loans also typically come in smaller amounts with repayment terms between three and 18 months. Interest rates could be high depending on the length of your term, your business’s cash flow, your credit profile and collateral. If approved, you could use a short-term loan to cover any business expense. The repayment schedule could be quick, so be prepared to make daily, weekly or monthly payments.

Business line of credit

A revolving business line of credit would help you pay for ongoing food truck expenses. You could draw funds from your credit line on an as-needed basis and only pay interest on what you borrow. However, you could be required to pay a maintenance fee to keep the line open. To qualify, you may need to offer collateral, and your interest rate would depend on your credit profile. Low-credit applicants typically have a higher likelihood of securing a line of credit than a traditional business loan, so it could be an attractive option if your credit is less than perfect.


Online crowdfunding platforms like GoFundMe, Kickstarter and Indiegogo would allow you to raise funds for your food truck from the general public. Some platforms simply let you accept donations, while others would require you to offer a product or stake in the business in exchange for funding. Compared with other types of financing, it may take a long time to raise enough money to cover substantial business costs. However, exposure on a crowdfunding site could help you build a fan following before opening your food truck.

Is the food truck industry right for you?

If you have experience in food service or have dreamt of owning your own dining establishment, a food truck may seem like a relatively affordable way to start your entrepreneurial journey. Food trucks have cheaper average startup costs than brick-and-mortar restaurants — less than $200,000 compared to $1 million or more. Full-time food trucks typically generate $100,000 to $150,000 in annual gross revenue, according to a survey from Food Truck Enterprise.

However, the expenses of running a food truck aren’t limited to startup costs. Ongoing maintenance could cost $40,000 to $50,000 a year, Stuck said. Older, used trucks need near-constant repairs as machinery like water pumps, propane tanks, coolers and generators wear down, he said.

“Stuff breaks all the time,” Stuck said. “I knew there would be some of that, but I don’t think I anticipated how substantial that workload was at first.”

Owning a food truck instead of a restaurant also wouldn’t allow you to escape the scrutiny of regulatory industries, as food trucks and restaurants must comply with strict food safety policies, Tomich said.

“They both have to go through health department approval,” she said. “But with brick and mortar, you’re dealing with a larger space and a larger menu.”

Competition within the industry adds increased pressure to make your food truck stand out. Social media can be a valuable asset when building your brand if you make a consistent effort across all your platforms, Stuck said. You should take time to post crisp, clear photos along with captions and content that establish a brand personality.

Market saturation could make it difficult to build a following and regular customer base, but the crowded industry shouldn’t deter newcomers, Stuck said, as long as you’re prepared to put in the work.

“I would do extra diligence at this time,” he said. “You really need to think through it and prepare.”

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Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]