A Guide to Food Truck Financing and Loans

In the restaurant industry, food truck entrepreneurs are a class unto themselves. Numbering about 36,000 in the U.S., they’re an inspired, resourceful, and resilient bunch. Like many chefs who dream of opening their own place, food truck owners are generally focused on culinary creativity and not so much on loan options or working capital. But in any business venture, too much focus on one thing can be detrimental to your success.  Even with a mind-blowing menu, potential customers, and inspiration in place, it takes financial savvy and funding to open a new food truck. In this article, you will learn the ins and outs of food truck financing and how to secure the best loan for your business.

Why do you need financing for a food truck? 

Why do you need financing in the first place? It’s a legitimate question when you consider that opening a food truck is much cheaper than opening a traditional restaurant. Even though startup costs may appear “reasonable” in comparison, it still requires a hefty chunk of change. 

How much investment is needed for a food truck?

Buying a brand-new food truck runs between $50,000 and $175,000. A used truck can cost anywhere from $30,000 to $70,000, and renting will likely run between $2,000 and $3,000 a month. Other pricey items are on the menu to success: equipment, truck customization, rental for storage space and a backup commercial kitchen, parking fees, marketing costs, licenses, permits, and more. 

All told, you can expect to spend $75,000 to $250,000 to get the wheels turning on your dream business.

If you have that kind of cash on hand, there’s no reason why you couldn’t dump a mountain of dollar bills into your business. However, that money will be illiquid, meaning it’s tied up and no longer available for emergencies, to pay bills, or make other short-term investments. Securing a loan helps borrowers maintain cash flow. The food truck industry can be challenging with supply chain issues, unpredictable gas prices, and worker shortages. A strong cash position can help your small business navigate bumps in the road.

Determining the Right Food Truck Business Loan For You 

There are many types of funding options. The key is determining the right business loan for you. Here are a few to consider. 

Traditional “brick and mortar” Bank Term Loans

A loan from a commercial bank, like Wells Fargo or Bank of America, may be the first option that comes to mind. It’s a lump sum payment that you receive from a lender. You’ll repay the amount with interest over months or years, and the interest rates can be variable or fixed.

First, the good news: The borrowing maximum is typically higher, and the interest rate is potentially lower than other types of loans. What’s more, a term loan with a commercial bank can help you build good credit.

Now the cons: They can be hard to qualify for, often require an excellent credit history, and approval can take months. These may be best for already-established businesses that do not need quick cash.

SBA Loan

Small Business Administration loans are offered through banks and online lenders that partner with the SBA, and fall into two buckets: working capital and fixed assets. These lenders work to provide approved small businesses with the money they need to get their businesses off the ground. 

Favorable loan terms constitute a significant upside. For instance, the interest rates are often highly competitive, translating to lower monthly payments. But, the process can be long. SBA loans typically require applicants to put down a significant amount of personal or business collateral to back their loan to prove their personal investment in the venture. SBA loans also have lengthy application processes that can extend for weeks or months, requiring applicants to submit years of financial statements and produce receipts for each major purchase the business has made over the course of several years. 

SBA loans could be a fit for you if your project has a flexible timeline and you don’t need capital on hand quickly.

See here for a complete list of the eligibility requirements for a SBA loan.

Merchant Cash Advance

Sticklers will point out that, technically, this isn’t a loan. It’s a cash advance based on debit and credit card payments deposited into your merchant account. You receive an upfront lump sum based on future debit and credit card sales. Popular with restaurants, people turn to these short-term loans when needing quick cash — often, the funds materialize in 24 hours, and you bypass the long loan application process. If your roof starts to leak or a power surge fries your equipment, the MCA is a solid option. 

But there are strings attached. Lenders usually charge a significant fee (called a “factor”) on top of the advance, making the payback amount potentially higher than a traditional loan. If you experience a period of slow sales, this could be bad news for the business.

Equipment Financing

This self-explanatory loan pays for, you guessed it, equipment. Sure, you can use an equipment loan for any cooking equipment or machinery that is essential to running your business, but you can also use it to cover the cost of buying or renting the actual food truck. 

After the down payment, equipment financing loans will typically cover up to the cost of purchasing your vehicle. To qualify, a solid business plan is essential, as well as a good credit score.

Microloan

Many traditional banks won’t lend to startups, low-income borrowers, or those with little or bad credit history. Enter the microloan. These loans are intended for small businesses and have more relaxed qualification standards. As the name suggests, the funding amount is much less than a traditional bank term loan, typically maxing out at $50,000. 

With lower interest rates and fewer fees than conventional loans, they’re a great option when in need of a small cash-flow boost. What’s the catch? Some lenders restrict how funds are spent, and eligibility may be restricted to specific underserved populations.

Crowdfunding

In essence, crowdfunding is taking small amounts of money from a large group of people through an online platform. Sounds easy enough. But you can’t just put your food truck idea on GoFundMe and expect the money to start rolling in. You’ll need a marketing strategy to get the word out to friends, family, and other potential investors. People don’t just invest randomly; building an effective campaign can take months to implement.

The good news is there are several excellent, highly trafficked sites at your fingertips. When researching the right crowdsourcing platform, pay special attention to the fee structure, social media integrations, and ease of use.

Business Line of Credit

One of the most flexible loan options available, the business line of credit, works like a credit card. You borrow and repay the money on your own terms, only paying interest on the portion you use. These are usually unsecured lines of credit, meaning no collateral is needed, and typically max out at $250,000. Food trucks often use these loans to buy inventory or pay smaller unexpected expenses.

Business Credit Cards

A business credit card can be a great option, but before swiping the plastic, remember that there are important differences between business cards and personal credit cards. First, many business cards prohibit holders from charging personal expenses; they’re generally used for supplies, equipment, and business travel. Additionally, business cards don’t have the same liability protection as personal credit cards in the case of fraud. 

To qualify, you must have an excellent personal credit history. But once you pay it down, you’ll establish a business credit history, which will help enormously if you ever apply for a business loan.

Food Truck Financing FAQs

What credit score is needed to buy a food truck?

Success is about having options, and a good credit score brings many perks. With a high score, you’ll qualify for more loans and lower rates because lenders will view you as trustworthy. FICO scores range from about 300 to 850, and the average in the U.S. was 714 in 2022. A range of 740 to 799 will allow you to qualify for the most favorable financing options. The bottom line is: if your score falls below 650, getting a loan may be a challenge.

How profitable is a food truck business?

With heavy competition and ever-changing tastes, navigating the first few years can be challenging. But, once established, mobile kitchens can be a profitable business. 

The national average revenue (the total sales before expenses) is $20,000 to $42,000 monthly. The net income — the profit that remains after all expenses and costs are subtracted — is highly variable and depends on many factors. A truck with an exciting menu in a bustling neighborhood with plenty of foot traffic will likely have higher profit margins than a truck with a low-cost menu in a small town. 

The most essential step is to forecast your sales as accurately as possible so you know how much you can reasonably spend on startup costs. You will need to estimate the average number of customers you can expect in a day by conducting field research on competitors. In other words, find trucks in your area and watch and count their customers during the lunch and dinner rush as well as the slow times. Once you know an approximate number of customers per day, you can make an educated guess at your sales.

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There are many unknowns about the economy, but with solid financial planning and a great concept, the path forward will be simple. Opening a food truck is not for the faint of heart (or stomach), but demand for cheap, delicious eats is still strong and shows no signs of waning.