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How to Finance Your First Food Truck: 6 Tips

Most foodies would rather taste-test dishes than make them. However, there may come a time when you simply can’t resist whipping up your own delicious creations. When you finally get the cooking bug and you’re ready to share your culinary passions with the world, buying a food truck may be your next best step. 

Unlike opening a restaurant, owning a food truck allows you to bring delicious eats to people all over the country. More importantly, you’ll be in charge, which means you can switch up the menu whenever you want and continuously expand your expertise. 

The only problem is food trucks can be expensive, especially if you build one from the ground up. How will you finance your moving kitchen? Well, there are a couple of ways to go about it. 

1. Use Personal Funds

Of course, the smartest way to finance your first food truck is to pay for it with your own savings. Roughly 77% of small businesses relied on personal funds for financing in 2018, so it’s a popular choice. Even if you can only afford to pay for half of it, putting some cash down on your food truck is better than none at all. 

Set aside a portion of your income each month and stick it in a savings account. Set up monthly automatic transfers from checking to savings to consistently increase your personal funds and reduce the amount you may have to take out in loans. 

2. Borrow from Loved Ones

Borrowing money from friends and family is another smart way to finance a food truck. Before you use up all of your personal savings, ask mom and dad if they’d be willing to lend you some cash. Perhaps a roommate or sibling is interested in your business venture and would like to contribute. 

If you do choose this route, present your idea like you’re pitching it to a bank. Let your loved ones decide if you’re worth the risk. If things fall through, you may struggle to pay them back, so prepare to field a few questions about where their money is going. 

3. Take Out a Microloan 

Perhaps you have to take out a small loan to cover the remainder of your startup expenses. In this case, a microloan may come in handy. This type of loan is available from nonprofit organizations, government agencies and private institutions and typically serves those with insufficient or low credit. Undeserved markets, including female entrepreneurs and low-income applicants, often receive approval for microloans, too. 

Similar to a vehicle loan, a microloan will use your food truck as collateral. However, you may need to offer additional collateral if your truck is worth less than the loan sum. The Small Business Administration Microloan program is a popular option and offers amounts up to $50,000 with interest rates ranging from 7% to 9%. 

4. Try Crowdfunding 

If you fail to meet the requirements for traditional loans, you can always try crowdfunding. Many food truck businesses use this strategy to solicit funds from friends, family and the general public. Unlike loans, crowdfunding involves donations, so you don’t typically repay the funds you raise. However, if you use a third-party site, they may claim a certain percentage of your earnings. 

For instance, Fundly charges 7.8% plus 30 cents per donation while Kickstarter charges 8% plus 20 cents per gift. Signup fees and processor fees may also dip into your net earnings, so do some research beforehand to determine the most lucrative option. 

5. Get a Business Credit Card

Using credit cards to pay for emergencies can be risky. However, getting and using a business credit card may be your only option if you’re unable to garner funds otherwise. Plus, if your food truck is successful, you can pay off your debts quickly and avoid any long-term financial damage. 

Business credit cards come with plenty of perks. Most offer flexible financing and carry more lenient requirements compared to loans. Some even provide incentives for food truck owners, like rewards on advertising and gas purchases. Annual percentage rates can be rather high, so plan to pay off your balance each month to avoid extra fees. 

6. Establish a Line of Credit 

Similar to business credit cards, food truck owners can charge hundreds of thousands of dollars to a line of credit on an as-needed basis. Most businesses use this option for ongoing expenses like inventory and payroll. However, they may also draw against their line of credit to cover emergencies like major repairs. 

Banks, traditional lenders and online lenders all offer business lines of credit. However, interest rates can range from 8% to 80% and some require certain assets as collateral. Plus, some require that you have a one-year operating history before applying, so you might want to save this option as a last resort. 

How to Best Finance a Food Truck 

Which financing option is best for your food truck business? The answer ultimately depends on how much money you need to purchase a truck and all the necessary equipment. Drafting a business plan and considering your long-term goals may help you determine how to best finance your endeavor, too. 

Make a list of your expenses and financing options. Then, shop around for the best rates and terms. Odds are there’s at least one solution that can help you get up and running.

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