How to get a loan for a food truck

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Ask a Lender
October 5, 2017 | Updated October 9, 2017


Key Points

Types of loans to finance a food truck

  • Conventional business, equipment or commercial vehicle loan
  • Small Business Administration (SBA) loan
  • Loan through food truck manufacturer or builder
  • Personal or home equity loan

They’re at every festival and sporting event, surrounded by steam and throngs of people: the mighty food truck. You might even have munched on a spam musubi taco and thought to yourself, “I could do this.”

Food trucks are certainly en vogue, attracting entrepreneurial spirits with the promise of a flexible, creative and low-cost business model relative to brick-and-mortar restaurants. Operating a successful food truck, however, is a volatile endeavor that requires substantial capital to establish and sustain.

As the cost of buying a food truck ranges from some $30,000 into the millions, if you’re considering entering the business you will probably need a loan to get started.

Conventional business loan

Food trucks serve a business purpose, so borrowers may finance them with a conventional business loan, equipment loan or commercial vehicle loan. The operative word is “may,” because few individuals meet the stringent requirements to qualify for such loans.

Business loans are already difficult to obtain, and lenders consider food trucks to be a riskier proposition than the average small business. Not only is restauranteering notoriously competitive to begin with, the mobile and unpredictable nature of food trucks introduces even more variables into the recipe for success.

Lenders assess loan eligibility based on the business and its owner, as well as the potential resale value of the food truck. Factors include but are not limited to:

  • Business owner’s credit — borrowers with scores in the 700s fare best
  • Down payment percentage — the higher the better, but typically at least 20 percent
  • Personal financial records and tax returns
  • Demonstrated experience in the food service industry or a similar business
  • Detailed business plan outlining expected sales, expenses and profit
  • Copy of necessary licenses and permits
  • Value of the food truck based on vehicle type, age, condition and features

If you are expanding an existing business, lenders will expect three to five years of business financial records and tax returns, adequate cash flow and manageable business debt. If you have poor credit, it will be even harder to qualify for a loan. Lenders are out there, but will charge high interest rates and likely require a cosigner as well as a significant down payment.

Small Business Administration loan

The U.S. Small Business Administration guarantees loans issued by private lenders to encourage lending to small businesses. This does not mean SBA loans are easy to qualify for, however. SBA lenders typically assess the same factors as a conventional business lender, including credit score, personal and business financials and down payment amount.

The SBA offers several financing programs. In particular, their Microloan Program offering loans of up to $50,000 and SBAExpress Program designed to evaluate and approve loans quickly, are well suited to finance a food truck.

Loan through food truck builder or manufacturer

Obtaining financing through a food truck manufacturer is not unlike buying a car from a dealership. The manufacturer does not issue the loan but partners with preferred lenders. While financing through the manufacturer offers fewer options and potentially higher interest rates, working with a lender experienced in the food truck industry could help you get approved. Compare lenders before talking with a manufacturer to identify whether their partners’ loan offerings are a good deal for you.

Personal or home equity loan

According to the SBA, more than half of small business owners use personal assets as their top source of startup capital. If a conventional loan is not feasible for you, consider taking out a personal loan or using the equity in your home.

A personal loan is an unsecured loan, and typically carries higher interest rates compared to other types of financing. A home equity loan or home equity line of credit is secured by your home, usually commanding lower interest rates. If you default on the loan, however, your lender has the right to seize your home.

Leasing a food truck

If the high cost and risk of buying a food truck intimidates you, leasing may be an option to help you sustain working capital or test your new venture without making a major commitment. Be sure to compare lessors and have a clear understanding of how the trade-in, renewal or lease buyout process will work at the end of the lease.

Ongoing costs

Acquiring a food truck is only the start of your expenses in the business. At minimum, you will be responsible for vehicle insurance and maintenance, kitchen equipment, food and supplies, safety equipment, employee wages, renting a commissary — or commercial kitchen — space, legal and accounting fees, taxes and necessary licenses and permits.

There’s more to a food truck business than being a good cook with a zany vehicle. Take your time to strengthen your credit, save for some starting capital and draw up a comprehensive business plan. With the right passion and business acumen, you’ll be slinging grilled cheese and Korean barbecue in no time.

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