Best Food Truck Loans for 2018
Food trucks are now more popular than ever with trucks popping up in cities large and small. If you’re thinking about starting or growing your food truck business, we’ve researched financing options and lenders to find the best food truck loans.
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Best Loans to Start or Expand a Food Truck Business
If you’re looking to expand or start a food truck business, there are a lot of options to help you purchase a truck, equipment and inventory.
Equipment Loans or Leasing
We recommend looking for a vehicle or equipment loan in two scenarios: for expanding your existing food truck business or for new food trucks, if you have proven success in the restaurant or food services industry. Both banks and online lenders offer equipment financing that is secured by the vehicle or equipment you’re purchasing, and in some cases, you can apply for financing or leasing through the food truck vendor or equipment website. With prices for new, customized food trucks around $80,000 to $200,000, you'll likely need an equipment loan to finance some of this purchase. Wells Fargo, for instance, offers online equipment loans up to $100,000 (you'll likely be able to get more if you choose to apply in branch) with rates starting as low as 5.75%. Currency, an online equipment financing marketplace, provides equipment loans up to several million dollars and partners with well-known websites such as eBay.
If you already have an established food truck business, you should be able to get an equipment loan provided you have good credit and a solid business plan. This is because the equipment loan is secured by whatever you’re purchasing, so there’s less risk to the lender. However, getting an equipment loan to start a food truck business will be harder, and you’ll need to have a great business plan, good credit and previous industry experience to likely even be considered for loan. Lenders may also want you to put up some of your own capital before considering you for a loan.
Best for: Expanding existing food truck business, or for new food trucks provided the borrower has great credentials.
- APRs starting at 3%
- Loan terms from 1 - 6 years
- Funds in a few days
- Loans up to several million
- Eligibility criteria vary
Microloans are an often overlooked source of funding, but they can be the perfect option for buying a used or small food truck, which can cost anywhere from $20,000 to $50,000. There are two microloan programs we like in particular: the Small Business Administration (SBA) microloan program and the Kiva microloan program. The SBA microloan program works the same as a normal SBA loan. You can borrow up to $50,000 through a third-party lender and the SBA will guarantee a portion of the loan. These loans can be used to start or expand a business, and generally come with interest rates between 8% and 13%. Most of the lenders that make these microloans are community organizations that have a specific focus on providing capital and management expertise in the areas that they serve -- they are looking to lend to borrowers who are going to make an impact in their community.
Kiva is another great microloan option for purchasing a food truck. While the lender only makes loans up to $10,000, these loans are interest-free and come with terms from three to 36 months. There are also no credit requirements. Kiva is a marketplace lender, so you’ll need to write a compelling pitch and business plan to secure the interest of investors in your project. One downside to this is that funding will take longer -- six weeks on average. However, many borrowers have successfully financed their food trucks through Kiva.
Best for: Purchasing a used or refurbished food truck.
- Rates from 0% - 13%
- Loan terms up to 6 years
- Funding in a few weeks
- Loans up to $50,000
- More lenient eligibility criteria
For food truckers willing to hustle, crowdfunding can be a great way to not only raise money to purchase your food truck but also generate publicity ahead of your launch. Crowdfunding sites, like Kickstarter, Indiegogo and GoFundMe, allow you to raise money in exchange for giving donors and backers rewards or gifts. To crowdfund your food truck, you’ll need to set up a campaign on one of the crowdfunding platforms with a specific funding goal. Your goal should be enough to cover all the costs associated with starting your food truck from purchasing the truck, buying inventory, hiring employees to getting permits and licenses. Crowdfunding websites generally offer either all-or-nothing funding or flexible funding (which allows you to keep any money raised). You’ll need to decide what works best for you.
The great thing about reward-based crowdfunding is that it’s an equity- and debt-free way to raise capital for your food truck, and because of this, you won’t need to put up collateral, personally guarantee anything or have a certain credit score to get funding. However, you will need to put in the work to have a successful crowdfunding campaign. This means having a well-thought-out and engaging business plan with great rewards that will appeal to potential donors.
Best for: Food truck owners willing to put in the work to raise funds.
- Platform fee up to 5%
- PayPal processing fees up to 5%
- Credit card processing fees up to 3% + $0.30
- All-or-nothing or flexible funding
Best Working Capital Loans for Food Trucks
Paying for food and beverage ingredients will likely be one of your biggest costs running a food truck.
Small Business Credit Card
Small business credit cards are great for cash flow and daily working capital needs as you can avoid paying interest and earn rewards on your purchases. While every food truck owner should think about getting a business credit card, we also recommend business credit cards for new food truck owners. This is because qualifying for a business credit card is primarily based on your personal credit score. Plus, most good business credit cards offer sign-up bonuses and ongoing rewards similar to what you’d find on a personal credit card. For instance, a card may give 2% unlimited cash back on all purchases as well as a $500 cash bonus after you spend $4,500 in the first three months. Some cards may also have introductory 0% APR, which if used responsibly, can be a good interest-free option for food truck startup financing.
We don’t recommend this method for borrowers who cannot use a credit card responsibly. It’s all too easy to get into trouble, especially when financing business purchases, with a credit card. Since qualifying for a credit card is based on your personal credit score, you likely won’t be able to get one if you have a bad credit score. While there are a couple of secured credit cards on the market, you will need to put up the amount of money you wish to have as a line of credit. In this case, it may be a better idea to use those funds directly for the business.
- 13% - 20% APRs
- Qualifying is based on personal credit score
- Offer sign-up bonuses and ongoing rewards
- Quick approval process
Payment Processor Working Capital Loan
We like these types of loans for food truck owners for two reasons: if most of your sales are credit or debit card transactions, repayment will on these loans will be hassle-free, and many of the big payment processors are offering competitive rates with less strict eligibility criteria. While numerous payment processors offer quick working capital loans, chief among these are PayPal and Square. Both processors provide working capital loans to merchants and businesses that heavily use their payment processing services. The structure of these loans is very similar: you will receive the loan either to your payment account or bank account and repayment is taken as a percentage of your daily credit card sales.
However, unlike a standard merchant cash advance, no payment is required on days you don’t have sales, and interest rates are generally lower. PayPal Working Capital loans, for instance, have APRs from approximately 15% to 30%. There are no specific terms for the loan, besides paying it off within 18 months or so. PayPal provides loans up to 25% of your annual PayPal sales (up to $97,000 on the first loan and $125,000 on subsequent loans), while Square only provides loans up to $10,000.
- 15.00% - 30.00%
- Terms of Up to 18 months
- Lenient eligibility criteria
- $1,000 - $97,000
- Funding time: Same day
Bank Line of Credit
For established food truck businesses, we recommend owners consider opening a line of credit with their bank. This is because banks can offer large lines with competitive interest and longer terms. If you’re thinking about this option, it’s best to start with the bank that you do your banking or lending with as they’ll likely be willing to find terms that work for you. Some banks are even offering online business loans and lines of credit to help expedite the normally slow application and funding process. Wells Fargo, for instance, allows members to apply online for a line of credit up to $100,000 with rates starting at 5.75%. The bank also has a reward programs for its line of credit that works similarly to a credit card rewards program.
In the case of Wells Fargo, you won’t necessarily need to be in business at least two years to qualify. However, the bank will likely want to see good personal credit history and demonstrated profitability of your business. If you’ve successfully borrowed from your bank before, these requirements may be less stringent or you may get approved for a lower rate or larger amount than you normally would.
- 5%+ APRs
- Terms up to several years
- Stricter eligibility criteria
- Loan amounts vary
- Funds in a few days or weeks
Best Food Truck Loans for Bad Credit
Even if you’re personal credit isn’t great, you can still get a business loan or line of credit for your food truck business.
We think Credibly is a good choice for borrowers with lower credit scores looking for competitive rates and terms. Credibly does not focus on credit scores during the application process, but rather a company’s financial health and stability. The lender offers term loans with APRs from 9.99% to 36%. Credibly has two loan products: a short-term working capital loan and a long-term business expansion loan. To qualify at Credibly, you’ll need to be in business at least six months with $10,000 in monthly revenue and bank account deposits. If applying for the business expansion loan, you’ll also need to have an average daily bank account balance over $1,000. You can borrow between $5,000 and $250,000.
Terms on the working capital loan range from six to 17 months, and terms on the business expansion loan are 18 to 24 months. The working capital loan requires daily repayment and the expansion loan requires weekly repayment. Depending on your cash flow cycle, this payment structure may actually work better for your business. Instead of making a large payment each month, you’ll need to make smaller payments each day or week.
Best for: Lower credit score borrowers who want a term loan.
- 9.99% - 36.00%
- Terms of 18 or 24 months
- Lenient eligibility criteria
- $50,000 - $250,000
- Funding time: As fast as 48 hours
We recommend borrowers with lower credit scores consider a Kabbage line of credit. Rather than solely relying on credit scores, Kabbage evaluates a business’s financials and online accounts to determine if the loan application is approved or not. More specifically, Kabbage will look at your business’s bank, online seller, payment processing, bookkeeping and even social media accounts to determine your eligibility. To qualify for up to $100,000, your business will need to be at least one year old with $50,000 or more in annual revenue. For lines of credit over $100,000, you'll need to be in business three years with $500,000 in annual revenue. The lender doesn’t require collateral or a personal guarantee, which can be great news for some business owners.
Because Kabbage doesn’t have strict credit requirements, the lender does have higher than average APRs from 20% to 80%. What’s more, paying early won’t save you a ton in interest due to how the fees are structured. On a Kabbage line of credit, you’ll typically pay higher fees in the first two months of the loan and then lower fees in the remaining months. However, there are no prepayment penalties, so you won’t be charged for paying early.
Best for: Borrowers with lower credit scores who want a line of credit.
- 20.00% - 80.00%
- Terms of 6 or 12 months
- Lenient eligibility criteria
- $2,000 - $150,000
- Funding time: As fast as same day
Summary of Best Food Truck Loans
In the table below, we’ve summarized the best food truck loans for all types of needs and borrowers.
|Starting a food truck business||Equipment loans or leasing||3%+|
|Microloans||0% - 18%|
|Working capital||Small business credit card||13% - 20%|
|Payment processor working capital loan||15% - 35%|
|Bank line of credit||5%+|
|Bad credit||Credibly||9.99% - 36.00%|
|Kabbage||20.00% - 80.00%|
How to Find the Best Food Truck Loans
As with starting any business, the key to starting a successful food truck is planning and preparation. And this is especially true in the restaurant and food services industry where businesses have historically higher failure rates. The first step before you apply for a loan is to write a strong business plan or proposal, regardless of whether this is a new or existing business. Lenders will want to see how you plan to use the funds, that you understand the market and why you’re going to be successful. This information should be backed up with detailed financial projections, industry and competitor analysis, product details and marketing and sales strategy.
You’ll also want to get other documents in order, including business and personal tax returns, business licenses and permits, commercial leases and business and personal credit information. While online lenders may not require all of these documents (like banks do), you still want to make the strongest case you can for the lender -- and this comes from your planning and preparation. Lenders may also want you to have some “skin in the game” and put in some of your personal funds. If you are approved for a loan, know that you can negotiate terms of the loan agreement before you sign. This strategy works especially well if you have several banks or lenders competing for your business.
If you’re rejected for a loan, make sure to ask the lender why they rejected you. Most lenders will give you information about what caused your application to be denied. Sometimes this is a simple problem to fix, and sometimes it means you need to find another lender. Just because one lender rejected you doesn’t mean all lenders will. It’s worth it to shop around to find a lender that wants to work with you. It’s also worthwhile to consider alternative funding options, like the ones we discussed above (i.e., crowdfunding, microloans, credit cards, etc.).