Best Food Truck Loans
At a Glance:
When starting a food truck business, you'll probably need to tap into various sources of funding. Food truck loans can include a small business loan, peer-to-peer loans, or even microloans.
Food trucks have become a launching pad for successful and even world-renowned brick-and-mortar restaurants. But the benefit of a food truck business model goes far beyond the chef getting their feet wet in the food industry—it’s about the relatively low startup costs.
A food truck costs much less to renovate than a physical location and might even come pre-established. The operating costs are also substantially lower than a conventional restaurant operation, which can easily reach into the millions.
A food truck can potentially get started for $50,000, but $50,000 is still the lower end of the spectrum, according to OpenTable. Costs for permitting, staffing, renovations (if needed), utilities, and the truck itself can quickly spiral. You might find yourself needing food truck loans to get started.
Types of Food Truck Loans
Not all loans apply to all food truck operations. A personal loan operates differently from a small business loan. The same goes for peer-to-peer lending options or a business line of credit. Just because your food truck qualifies for a specific financing option doesn’t necessarily mean it’s a good move for your business' financial future.
Also, depending on your business structure, partners, and investors, you might only qualify for less-than-ideal lending options. Your credit score, as well as previous business financial history, can play an essential role in which food truck financing options you are eligible for.
Before getting started, have a detailed and professional business plan in place. The quality of the business plan can send a message to any potential investors or lending officers. A project on the back of a napkin just isn’t going to cut it.
Explore more than one option from more than one provider to determine what loan is the best option for your new food truck business. Don’t be afraid to shop around, as interest rates and payment terms can vary significantly from one lender to another.
Jump to a section:
- Personal Loans
- SBA Loans
- Working Capital Loans
- Business Line of Credit
- Equipment Loans
- Invoice Factoring
- Merchant Cash Advance
- Peer-to-Peer Loans
The majority of banks and credit unions offer some form of personal loans. Personal loans take your credit score and personal credit history into account for approval and interest rates. Depending on the financial institution, you can often apply online with fast approval.
A personal loan used to start a food truck can often be much easier to secure than a small business loan, especially if it's for a new company. Rates can vary significantly based on creditworthiness, which means applicants with good to excellent credit tend to receive the most favorable rates.
Citibank offers personal loans from $2,000 to $50,000, with rates varying between 7.99% APR to 17.99% APR. You can choose from repayment terms of 12, 24, 36, 48 or 60 months.
Wells Fargo provides competitive personal loans nationally, from between $3,000 to $100,000 (unsecured). Terms range from 12 months to 60 months. Interest rates will also change depending on credit score and region, but can range from 7.24% to 24.24%.
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Small Business Administration (SBA) Loans
The SBA loan program reduces the risk to both lenders and borrowers seeking small business loans to start or expand a business. While the SBA doesn’t technically lend the money, it can help borrowers find appropriate lenders whose loans meet their strict guidelines. The SBA provides small businesses with access to loans from as little as $500 to $5.5 million with competitive rates on non-guaranteed loans.
Food truck owners are eligible for SBA loans to start a food truck so long as they have a vested financial (or time-spent) interest in a U.S.-based business and they exhaust all other financing options. Small business loans make sense for those food truck operators who were unable to access more conventional small business loans. An SBA loan can help you avoid risky financial obligations through a guaranteed and vetted loan provider. It offers a lender matching tool to help take some of the guesswork out of the process.
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Microcredit is typically under $50,000 but can be as small as a few hundred dollars. Microlenders usually target underserved populations, like immigrants, minorities, and female entrepreneurs. Microlenders tend also to provide other guidance or community support to their borrowers to help their small business along.
Microloans might make a good option for food trucks on the lower end of the budget: under $50,000. They could be an especially good option if you are from an underserved population and don't have access to more conventional funding.
Grameen works with female entrepreneurs exclusively, starting with a series of free financial and business workshops followed by a small loan for $1,500. The loan comes with continued support as the business grows.
A nonprofit microlender in the U.S., Opportunity Fund is geared toward women- and minority-owned small businesses. Its median loan is for $21,000, and the loan holders have a median household income of $38,000. It works with low-income families and business owners who don’t have access to more traditional financing options.
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Working Capital Loans
Certain types of food trucks—for example, a gourmet lemonade or ice cream truck—might benefit from a working capital loan. Working capital loans are not designed to cover startup expenses or asset purchases (like for a food truck itself). Instead, they are designed to help businesses overcome cash flow issues and cover daily operational expenses like payroll and product.
They work best for seasonal businesses, like those mentioned above, which have drastically different incomes between one season and the next. Although your food truck might be short on cash in the winter, in the summer you can catch up, pay off the loan, and start earning income again. Working capital loans can be relatively easy to get, provided your food truck has demonstrated income during the high season.
National Funding Working Capital
National Funding, a nationwide lender, provides low-barrier working capital to small businesses from $5,000 to $500,000. Interest rates will vary depending on your personal and business credit history.
Another possible option, Direct Capital, offers small businesses up to $150,000 for terms from 6 to 8 months, with rates starting at 9.99% APR. Businesses can apply online and might get same-day funding.
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Business Line of Credit
Business lines of credit are often more challenging to access for small, startup businesses than for those with a proven financial track record. Because the line of credit is provided on an ongoing basis, the bank wants to ensure you are in good financial standing.
With that said, if you can get approval for a business line of credit, it’s one option that can help you through the unpredictable ups and downs of running a food truck. Did your fridge blow up and need replacing? Did you hire another staff member to get you through a busy month? A business line of credit is valuable as the short-term bridge between low and high cash flow. It’s comparable to a business credit card in this sense. They are typically under $50,000 and are not suitable for making large asset purchases or for managing long-term financial issues.
Bank of America Business Line of Credit
Bank of America offers a business line of credit starting at $25,000 with an interest rate as low as 5.50% depending on credit history. Plus, borrowers earn rewards based on the business bank balance and for adding more Bank of America products to their accounts.
PNC Business Line of Credit
PNC technically has three lines of credit on offer for businesses. The Choice Credit requires no collateral and boasts easy access to funds between $20,000 and $100,000. It also offers the Secured Line of Credit, which does require collateral for lines of credit between $100,000 and $3 million. Interest rates and details vary between products and depend on business creditworthiness.
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Equipment loans for food trucks make perfect sense for startup operations. Why? Because you’re likely looking for funding to purchase and renovate the most significant expenditure in your project: the truck. Many banks that cater to businesses will have an equipment loan option. You’ll need to have good credit standing to apply and likely a down payment on the equipment—anywhere from 5 percent to 20 percent of the total cost. Equipment loans can also be offered through the dealer, although this is likely a rare occurrence for a food truck.
Wells Fargo Equipment Financing
The finer details of the equipment loans offered through Wells Fargo are available as you work with the customer service agent. Under the details of their Commercial Transportation Financing, Wells Fargo provides loans with 12- to 84-month set terms and seasonal payment structures, among many other options.
Crest Capital Equipment Loans
Crest Capital offers an easy application for equipment and vehicle loans up to $250,000. As an added bonus, they provide 100 percent financing, whereas other lenders might require the initial down payment.
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Invoice factoring involves selling off your accounts receivable to a lender, who in turn issues an immediate loan to you – and it might carry a relatively high interest rate. Your business might also have to pay a service fee.
For a food truck, it might only make sense if you have large invoices awaiting collection—for example, if you worked a weekend festival or were getting paid for a long-term contract. Most food trucks tend to have no large invoices awaiting payment, and therefore invoice factoring would make sense in only rare instances.
Comcap Factoring offers invoice factoring services, with advances ranging from 80 percent to 95 percent of the invoice. Their interest rates vary from 1.15% to 3.5% per month and are based on the size of the company and its creditworthiness.
Fund Through Invoice Financing
Fund Through provides an easy online portal through which the entire lending process is managed. Once you've created a business profile and you've uploaded your invoices, you could access your loan within 24 hours. Signing up for the service is free, and there is no obligation to use your account.
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Merchant Cash Advance
Merchant cash advances are an uncommon method of sourcing financing but might make a good option for food trucks in good financial standing. Technically, you are selling off future credit card sales to receive immediate assistance with cash flow. A merchant cash advance provider will assess your daily credit card sales and determine if they deem you a good investment for paying back the cash advance promptly.
Because the lender is essentially betting on your future success, this option comes with relatively higher interest rates, paid daily as a percentage of credit card sales. Advances have lower flexibility than other small business loans. It could make sense for an established food truck facing a short-term financial stressor. However, it would not make sense for startups or those facing ongoing operating cash flow issues.
Business Funding USA Merchant Cash Advance
Business Funding USA might be worth considering for small food truck businesses with at least $2,000 in credit card sales each month. Your company must have a credit score of at least 450, and you must be in operation for at least two months before applying.
Cashbloom Merchant Cash Advance
Cashbloom requires at least $5,000 in credit card sales per month, and they lend out as much as $1 million if approved. Repayment is easy, as they simply take a small percentage of your future credit card sales as an automatic payment.
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A relatively new, alternative form of financing a business, peer-to-peer business loans are organized between a business and an investor. Today, they are commonly sourced from peer-to-peer lending sites that connect businesses needing financing to a potential investor.
These third-party companies screen members, service the loan, and make the process as smooth as possible for both parties. Food trucks are often a popular choice for an investor. However, despite the popularity, the terms and conditions of the loans vary significantly.
Food truck businesses could benefit from a peer-to-peer investment, especially if they seek investors within their region who understand the market. It might be a good alternative if you are unable to get more traditional loans.
A platform that connects investors to borrowers, providing a safety net to both parties. Borrowers may qualify for loans between $5,000 and $300,000, with terms between one and five years. All investments with LendingClub have fixed annual interest rates from 9.77% to 35.71%.
Another new peer-to-peer lending network connecting lenders with borrowers. Upstart offers loans from $1,000 to $50,000 with interest rates ranging from 8.36% to 29.99% APR. Its loans come with a three- or five-year term, and there are no prepayment fees.
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Additional Food Truck Financing
Small Business Credit Cards
Small business credit cards are a more expensive choice for anyone seeking to start up a new food truck. Credit card interest rates and repayment terms are high and inflexible. Small businesses with little to no income might find it difficult to get out of credit card debt.
However, that doesn’t mean that food truck owners haven’t relied on their credit cards to successfully open in the past. Yet, turning to business credit cards to finance your food truck does warrant a word of caution. Look for other options before signing up for a business credit card to get your project up and running.
U.S. Bank Business Edge Credit Card
The Business Edge could be a competitive choice, as it offers a 0% intro APR, which after the promotional period turns into 11.74% to 19.74% variable APR. It also has no annual fee.
American Express SimplyCash Plus Business Credit Card
This American Express business credit card offers 1% to 5% cash back on purchases. It has an introductory bonus offer of $500 cash back, which might prove lucrative if you are making over $5,000 in purchases within six months of opening the card, or an additional $10,000 in purchases over 12 months.
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For food truck businesses just getting underway, the best bang for your buck is likely going through more conventional channels, including banks and credit unions. Peer-to-peer lending might be a good option for food truck loans, or if you are a new business that is already up and running, some of the shorter-term solutions might make the most sense.
Financing a food truck business doesn’t have to be as challenging as you think. Plan out your cash flow, budget for the foreseeable future, and explore which food truck loans make the most sense for your situation.
Author: Jeff Gitlen
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