How to Get a Food Truck Business Loan

Looking to fund your food truck business idea? Join the billion-dollar food truck industry by taking advantage of financing options for foodie entrepreneurs like yourself. Here, we'll go through all the info you need to make smart financial decisions for your food truck business and secure a food truck business loan.

How to Get Financing for Your Food Truck Business

Food trucks became extremely popular pre-2020. But like many businesses, they suffered a setback during the pandemic. These days, however, food trucks are making a resurgence, and for many entrepreneurs and aspiring chefs, they're a great business choice. But starting a food truck business involves a lot of planning and costs. Here's how to get a loan and secure financing for your food truck so you can hit the gas on your business dreams:

1. Research Market Costs

Starting a food truck business is doable, but it doesn't always come cheap. If you're equally as passionate about food as you are about entrepreneurship, a food truck is a more cost-effective venture than opening a restaurant.

But those are just the basic costs. You'll also need to research and plan other expenses to get you up and running, including the following:

• Type of food truck: Are you going to buy new or used? Will you purchase a van, a trailer, or a food cart? This choice will determine what's probably going to be your biggest expense.
• Equipment: You can buy a truck that's already kitted out for a food truck venture, or you can equip it yourself. Costs will depend on the equipment you choose and what you'll definitely need (think fryers, refrigerators, etc.).
• Licensing: You may need specific licenses or permits to operate your food truck legally, and there will be fees associated with securing them.
• Staff: Unless this is a one-person show or a family venture, you'll probably need to hire some staff to help you run your food truck business.
• Food: You'll need to plan your inventory carefully, as space is a big factor with a food truck. You don't want to suffer losses on perishable foods that go to waste. This will take some trial and error as you assess demand and identify popular times, tastes, and trends.
• Repairs: A food truck is basically a restaurant on wheels, and that means you need to keep it running. Regular maintenance is important, but you'll also need to factor in unexpected issues and repairs.

2. Calculate Food Truck Costs

Now that you understand the basic costs, it's time to get down to the nitty-gritty. Whether you're buying new or used equipment, you'll now have to decide how you want to make the purchase. How you obtain your equipment will determine how much your overall food truck investment will be. You have a few options:

• Buy: Definitely the costliest upfront expense, but this also means your food truck and everything inside it will be a long-term asset for your business.
• Lease: A more cost-effective choice, but could have financing ramifications because you don't actually own the equipment that keeps your food truck running.
• Rent: A short-term option that narrows your financing choices but could be a valid way to get started quickly or test new products or methods.

Once you've decided whether you're buying new or used and how you'll make the purchase, you can start estimating how much you'll need to finance your food truck dreams.

3. Make a Business Plan

A business plan is a critical step in building a successful food truck business. Not only does it give you a roadmap for business operations, but it's also extremely useful (and sometimes required) when applying for financing.

Make sure your food truck business plan includes the following:

• Executive summary: All the important details about your business
• Goals: What you hope to achieve with your food truck business
• Business description: A detailed look at how you plan to start and run the business
• Market analysis: An overview of the expected demand for your product and any research to back up your claims
• Business structure overview: An overview of the business entity you've chosen (or sole proprietorship if you opt not to form a legal structure)
• Business model: Your plan for turning a profit with your food truck business
• Marketing and sales plan: A detailed look at how you'll spread the word about your business and get consistent sales
• Financial projections: A look at your anticipated revenue and profits for at least the next five years
• Appendix: Attached important documents such as Articles of Organization, licenses, and permits

Need help putting together the perfect business plan? Check out our free business plan template.

4. Determine Your Credit Worthiness

There are two different types of credit you should be concerned with when starting a business: personal credit and business credit. You'll want to make sure you're monitoring your personal credit score from all three major reporting bureaus: Equifax, TransUnion, and Experian. You don't need great credit to start a business, but the better your score, the more success you'll have with financing and securing a food truck business loan.

If you're already running your business, you should be working to build your business credit as well. A good score can help you secure funding and make financing easier.

Even if you haven't yet established your business credit, don't worry. Making smart financing decisions for your business now will get you on the right path for the future.

5. Evaluate Food Truck Loan Options

There are many types of loans and financing options for food truck owners. The one you choose depends on many factors, like your needs, location, and credit score. These are the most common types of food truck loans:

 

Working Capital Loans

A working capital loan is a relatively short-term loan that's usually paid off in 18 months or less. It's best for smaller loan amounts that can be quickly repaid, so it could be useful during off-seasons or for a quick boost to your startup financing.

 

Equipment Loans

These offer a great way to secure your food truck vehicle or purchase the equipment necessary to make it operational. You'll have to provide a down payment for these loans, and the equipment itself acts as your collateral.

 

Merchant Cash Advances

Often used for retailers, a merchant cash advance can also be used by food truck owners. It's a quick way to get money for what you need, but the lender will take a portion of future sales from your business in exchange. To qualify, you'll need to have been in operation for a minimum of six months and bring in around $120,000 or more in annual revenue.

 

Business Term Loans

Think of this like a home mortgage but for your food truck business. You'll apply for a particular amount that you'll repay within a set window of time — anywhere from six months to 10 years. Term loans can be a great choice if you're looking for consistency and stability. However, they can take a while to repay and sometimes require higher credit scores and steady income.

 

SBA Loans

Loans from the Small Business Administration are some of the best you can get, but it can be tough to qualify. Most of the time, they'll require that you've been in business for more than two years and that your personal credit is above 680. They require a business plan before approval, so you'll want to ensure you have that buttoned up.

 

Vendor Leasing Programs

If you're looking for an all-in-one way to get into the food truck business, a vendor lease could be a good option. Rent or lease your equipped vehicle for lower upfront costs and regular monthly payments. Just remember that you do not own your equipment, but you might have the option to buy once your lease is over.

 

Business Lines of Credit

This operates much like a business credit card, but it usually has a higher limit and lower interest. This is an extremely flexible way to finance your food truck business, and it's also cost-efficient due to its lower interest rates. It does, however, have tougher requirements than some other financing options.

6. Consider Business Formation

Making your business official is about much more than all the steps we've listed here. It's also about choosing a business structure that fits your needs and your goals. The most common legal business structures include:

• LLC: A limited liability company is the most popular legal business entity and offers plenty of liability protection. An LLC is a great choice for most food truck vendors, as it suits a variety of small businesses. It's also a cost-effective way to secure a legal business structure.
• S Corp: An S Corp can be a business entity or a tax designation for an LLC. All S Corp owners structure their taxes differently and can benefit from significant tax savings. To be an S Corp, you must meet a number of requirements, such as having fewer than 100 shareholders, all of whom are U.S. citizens.
• C Corp: A C Corps is the largest and most complex business type. It's a great choice for large businesses focusing on serious growth. However, it may offer more than the average food truck owner needs.

Whatever you choose, you can't go wrong with business formation services from Bizee. We'll handle the paperwork, and all you'll pay is your state fee.

Food Truck Loans and Financing FAQs

How Do You Apply for a Food Truck Loan?

You can apply for a food truck loan through the financial institution of your choice, through the SBA, or through another agency. You can search "food truck business loans" to uncover a wide selection of funding options.

What Documents Do I Need to Apply for a Food Truck Loan?

The documents you'll need to apply for a food truck loan include an EIN, your Articles of Organization or Articles of Incorporation, and a business plan. You may also need proof of appropriate business licenses and permits.

Who Qualifies for Food Truck Financing and Loans?

To qualify for food truck financing and loans, factors such as your personal credit and business credit are taken into consideration. Qualification may also depend on whether you've already been in business, what your cash flow looks like, how much annual revenue you make, and how risky any of these factors might be to your organization.

How Can You Fund a Food Truck Business Without Financing?

You can fund a food truck business without financing, but self-funding can get extremely expensive. While food trucks are less costly than traditional restaurants, there are significant upfront expenses you'll need to cover. If you don't want a loan or financing, you might look into crowdfunding options or ask your friends and family to become investors.

Can You Get a Food Truck Loan With Bad Credit?

Depending on the loan, you can get a food truck loan with bad credit. However, the better your credit, the more likely you are to get approved, and the better the loan terms will be.

What Business Entity Is Best for a Food Truck?

The business entity that's best for your food truck will depend on your situation and your goals for the business. An LLC is a popular choice for food trucks and should offer all the liability protection and benefits you need.

Form Your Food Truck Business Today

Ready to hit the road? Many financing options are available for your food truck business, but the best choice for you depends on your circumstances. Estimate your costs and do your research early on so you know how much to ask for upfront.

Remember that business formation is an excellent way to increase your odds of obtaining loans. Why? Because it tells banks and financial institutions you're a legitimate business owner who's serious about your future success. Bizee can get you started with our $0 LLC formation package — all you pay is your state fee.