How to Finance a Food Truck Business Without Traditional Bank Loans

If you’re an aspiring food business owner, you’ve probably wondered just how to finance a food truck business.

Yet, acquiring financing for these small businesses is not as easy as it may look.While the food truck market is one of the fastest-growing food industries in the US – expected to be worth around $1.1 billion in 2023 (as shown in the chart below) – many truck owners still struggle to raise capital.

Despite looking at an operation that will have some attractively low startup figures — which might be as little as $50,000 — many food truck entrepreneurs are pushed toward acquiring small business loans due to high operating expenses, like energy, staff and parking costs.

Yet, while there is a real need for acquiring small food truck loans, many of these small business owners are often met by obstacles such as:

  • High loan rejection rate from traditional lenders
  • A failure to qualify for emergency funding, like the Payment Protection Program (PPP) or the Economic Injury Disaster Loan (EIDL) during the pandemic
  • The highest inflation in over 40 years that is now impacting global food and commodity prices
  • A vicious cycle consisting of an inability to purchase basic material stock due to low funds, and a failure to make profit due to low stock.

But there are reasons to be optimistic.

Technological advances and a sky-high demand for financing a food truck mean new players are disrupting the traditional lending sector and reducing the ‘Macmillan Gap’ — the disconnect between the required finance needed to power growth, and the amount actually provided. 

New ways of assessing the health of small businesses are moving away from credit scores and bank statements and toward measuring alternative aspects of a business’s performance, including by using their online data and footprints. 

Food truck owners may find they qualify for financing on the strength of future sales, asset value or even social media performance

However, just because your food truck qualifies for a financing option doesn’t mean it’s the best move – taking the time to research all available avenues and making sure you choose the right one is also essential.

Here’s how to go about it.

Keep hitting a brick wall when applying for food truck loans? When it comes to learning how to finance a food truck business, Duckfund can help by providing loans that reflect your business’s actual potential, and not just credit scores and bank statements.

The Definitive Guide to Financing a Food Truck (Without Traditional Loans)

First thing: Prepare yourself

Instead of diving head-first into a raft of loan applications, it’s better to take the time to draw up a plan. That way you avoid wasting time on financing that is unsuitable or even dangerous to your food truck business. And it also helps you achieve clarity and pinpoint exactly what you need.

The first step is figuring out a ballpark figure for the loan.

Drawing up a spreadsheet listing all your different funding requirements is useful here. Don’t forget expenses such as health and safety permits and truck decor.

Then, get all the relevant business documents in place so that you’re ready to apply. Tick off a checklist that includes your business plan, income tax returns and balance sheet.

You may also need to itemize the collateral you have available. Some lenders don’t require all this info, but it’s best to have it to hand just in case.

Next, set the time aside to shop around.

While time is a precious commodity, particularly for small business owners, it’s important to weigh all the options carefully and avoid rushing to a quick decision. Interest rates and payment terms can fluctuate, so comparing several options is a wise move.

All set? Let’s look at some lending options available to food truck owners in 2022.

Compare food truck loan options out there

Before you start, ensuring you have a basic knowledge of which type of loan is best suited to your business is key. Weighing up the pros and cons of asset-based vs cashflow lending, for example, will help you find the right type of finance for your needs.

1. Microlending

Microlending, or microloans, are loans made for smaller amounts (as the name indicates), and they usually come with flexible lending requirements.

Geared toward SMB owners with credit issues and/or little experience, they range from a few hundred dollars up to $50,000, which make them useful for covering smaller expenses rather than the wholesale funding of a food truck.

Lenders are typically non-banking institutions, such as private lenders, nonprofits, or government agencies like the Small Business Administration (SBA), which has a dedicated microloan program. Repayment periods can last as long as seven years, and interest rates are normally between well below 10%, making them much more competitive than bank loans.

As a food truck owner, you may find that a microloan is the easy-access springboard you need to kickstart trading and use some of your profits to cover repayments, and many would agree.

According to the SBA, the number of approved microloans grew steadily between 2016 and 2020, with businesses borrowing an average of $14,434 at a median rate of 6.5%.

Another useful option, particularly for female- and minority-owned food trucks is the Opportunity Fund whose average loan amount of $21,000 is based on a median income of $38,000, something which prospective borrowers can demonstrate with expected sales figures or a detailed business plan.

2. Crowdfunding

If your food truck has a niche idea that may appeal to a lot of people, or even just a smart marketing brain behind it, then you could try organizing a crowdfunding campaign.This is where entrepreneurs with an interesting plan can raise funds from the general public via platforms such as GoFundMe and Indiegogo. A great option if you don’t meet lending criteria, it’s a useful way to both drum up interest in your idea and get a financial boost at the same time.One famous example was the Anarchy Burgers truck, set up in 2017.They used a clever marketing campaign which featured various perks for investors, ranging from custom stickers and buttons for $10 to a private punk show and dinner for $1,000. Before long, they had raised over $7,000 on Indiegogo alone.The success of this creative campaign was no doubt the result of a lot of time and effort, and there are platform processing fees involved, but it goes to show how anyone with a bright food truck idea can raise money with no credit requirements.

3. Merchant cash advances

The beauty of this type of finance is that it takes into account future performance rather than anything that’s happened in the past. For inexperienced food truck owners hoping to make a splash in their first summer season, this could be an attractive option.Merchant cash advances involve a lender providing short-term funds based on the volume of your future sales. You then repay the sum with a portion of your credit card sales.As a quick cash injection that you know you can pay back soon, this type of arrangement is ideal. However, it’s possible to fall into the trap of using it to get yourself out of a financial hole, and its high costs risk making this precarious situation even worse.

4. Equipment loans

One of the main roadblocks of traditional lending is the waiting time for approval, which can make or break a small business.Debt crowdfunding gets around this with quick go-aheads; SMBs normally receive a response within days thanks to the simple nature of the online platforms involved.It’s also a useful way for the SMB to get its name out into the public domain.To get acceptance, they need to present their product or service in an attractive light, which can peak the interest of a wide pool of potential consumers, as well as investors. In some cases, the application process itself can help create a buzz around the business and even help to build a community around it.It also stands out from other equity- and rewards-based crowdfunding in that owners don’t need to offer a share of the business, or incentive, to secure funding; they just need to pass the lender’s criteria, which is often much less demanding than the conditions imposed by banks and traditional lenders.If a borrower doesn’t like the terms offered by one lender, there are normally several less stringent alternatives to choose from.

Struggling to raise capital for your food truck business?

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