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Food Truck Loans: Financing Options for Food Truck Businesses

Food Truck Financing

As I am sure everyone knows, we need food to survive, but with the fast paced lifestyle taking over in the United States today, not everyone has the time (or ability) to cook. This often leads to people resorting to paying for overpriced restaurants or underpaying for fast food that is not healthy. This is why the food truck industry has continued to skyrocket and expand since the start of this trend a few years ago. By the end of 2016, the food truck industry is expected to reach $800 million. The food truck industry has seen an increased annualized rate of 9.3 percent over the past five years into 2015. With this exceptional growth rate that is only continuing to rise, there has been a major increase in the amount of food trucks in this industry – there is now over 5,000 food truck businesses throughout the United States. This is largely in part to the booming industry profitability, leading to a “copycat” effect; this means that for every successful food truck spawns many others, resulting in an incredibly diverse and competitive market. This means that many food truck owners in the food truck industry need to be staying on top of emerging trends in order to thrive in this competitive market.

The most challenging aspect of the food truck industry for any food truck owner is the various hurdles that will be faced with constantly changing regulations, permits, and licenses. Every city has different requirements and codes for food trucks, however there are still many issues to be worked out in this still new food truck industry. Regulators are still struggling to figure out the best way to regulate food trucks, however the past few years have shown that they are leaning towards a more open minded perspective when it comes to food trucks. Food truck owners currently have less regulations and fees to deal with compared to brick and mortar restaurants, however this does not mean that this situation won’t change. Every food truck owner must stay on top of knowing the rules of the road to keep their food truck thriving in busy cities.

When Would a Food Truck Need a Financing?

  • Equipment is one of the most essential aspects of the food truck industry. If your food truck does not have a reliable truck then your business will face many struggles. However, a truck for your food truck business is not the only piece of equipment that you need to have. Pots, pans, working ovens, and many other cooking utensils are a must have for every food truck owner, but these purchases can be expensive, especially if it was an unexpected replacement. Reviewing the different financing options available for buying new equipment for your food truck can help during those unexpected emergencies.
  • Buying food from local farmers, producing local food yourself, or creating artisanal products for your food truck is the biggest trend in the United States today. As mentioned above, this industry is continuously growing, and the competition is only getting more intense. Consumers today want to know where their food is coming from and catering to this trend is the best way to stay ahead in the upcoming years. With local produce comes more money being spent to provide these quality products. Transitioning, or starting, your food truck into the local market is not a cheap venture, so being aware of the different loan options for your food truck is essential in staying ahead.
  • Fuel is an unavoidable expense when your business is completely mobile, and as we all know, gas prices constantly fluctuate. When gas prices go up it can be difficult for food truck owners to easily get to where they need to go. Looking into food truck financing options can help during difficult times.
  • Permits and licenses can be affordable for some areas, however bigger cities tend to require more capital to purchase these mandatory permits. Once again, this is an unavoidable expense for every food truck owner, so considering financing options to help expand your food truck business is essential.

Types of Food Truck Loans

Types Rates Terms Funding
Bank 6-10% 3-7 years 14-30 days
SBA 6-10% 3-7 years 10-30 days
Line of Credit 5-15% 1 – 3 years 7-30 days
Alternative 6-25% 1-5 years 5-7 days
 Cash Advance 1.16-1.55 3-24 months 1-3 days
Invoice Finance 1-2% weekly 1 – 90 days 1-3 days

Food Truck Bank Loans

Traditional bank term loans for food trucks or lines of credit for food trucks are the first options for food truck owners looking for a loan. Traditional bank food truck loans usually offer the best rates and terms of all types of small business loans available to food truck owners. Unfortunately, there are strict requirements and stipulations when trying to obtain a traditional bank loan for a food truck. The biggest issue food truck owners face when trying to access a traditional bank loan or line of credit is that traditional bank loans typically only approve loans for the most credit worthy and most established of food truck businesses, which might be difficult for some food truck owners. Even if a food truck owner can obtain a traditional bank loan for their food truck, it can be a lengthy process. If a food truck owner needs capital quickly, reviewing other options might be needed.

  • Rates: 4-10%
  • Terms: 1-5 years

Food Truck SBA Loans

SBA loans are a great alternative to traditional bank loans for small business food trucks. The major advantage to considering an SBA food truck loan is the fact that the Small Business Administration will guarantee a portion of the loan if the food truck owner defaults. What this means is that SBA loan lenders are more willing to approve a loan for a food truck. However, SBA loans generally require a credit score above 650, so the program isn’t accessible for owners with bad credit. If a food truck owner is approved for an SBA loan, the SBA loan can be used for working capital, purchasing food truck equipment, and food truck supplies and materials.

  • Rates: 6-8%
  • Terms: 7-25 years

Food Truck Alternative Loans

For food truck owners that do not qualify for traditional bank loans or SBA loans, a mid prime business loan may be a good option to consider. For most food truck owners, mid prime business loans usually have decent rates and terms, which allows owners to have access to capital with a reasonable payment and lower interest rates than a merchant cash advance. In conjunction with decent rates and terms, mid prime business loans for food trucks are a much faster funding option for those food truck owners who need access to funds right away. Low credit score requirements and limited documentation are also a benefit to mid prime loans for food truck owners.

  • Rates: 9-16%
  • Terms: 1-5 years

Asset Based Food Truck Loans

Asset based loans give food truck owners the option and ability to obtain working capital by using their personal or business real estate as collateral for financing. An asset based food truck lender will provide up to 75% of the personal or commercial property’s value.

  • Rates: 10-20%
  • Terms: 1-5 years

Food Truck Equipment Leasing

Equipment is a necessity in the food truck industry, meaning food truck owners will always need access to capital to fund equipment upgrades or replacements. Leasing the food truck equipment needed to keep a food truck running is a viable option for any food truck owner, however it is much more expensive than buying the piece of equipment outright. However, paying up front for expensive food truck equipment is not always a realistic option, so considering financing for food truck equipment will help. Some of these financing options for food truck owners looking to upgrade or replace equipment include equipment loans, equipment leasing options, and equipment sale-lease back.

  • Rates: 6-20%
  • Terms: 1-10 years

Food Truck Cash Advance

Merchant cash advances for food truck owners are not actually loans, but instead are a business to business financing arrangement where a lender will provide upfront fast financing in return for a percentage of the food truck businesses’ bank deposits or credit card transactions. Many food truck owners avoid merchant cash advances because they typically have high rates and terms, but they may be the only option for a food truck owner who needs access to capital quickly. The other perks of merchant cash advances for food trucks is that if the owner does not have good credit than they will still most likely get approved. Repayment of merchant cash advances for food truck loans consist of an automated payment being made at the end of each business day.

  • Rates: 16-100%
  • Terms: 4 months – 2 years

Get a Food Truck Loan

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