The 2010s were a great decade for food trucks. From 2014 to 2017, the food truck industry’s revenue grew by 300% and surpassed $2 billion. In that same period, food truck growth actually outpaced restaurant growth, 5.4% to 4.3%. The 2020s have thus far been rockier for the food truck industry, but small business loans for food trucks can help.
Through low-cost funding for food truck business growth, food truck owners like yourself might be able to combat the obstacles the COVID-19 pandemic has placed on the industry. These obstacles might include struggling with reduced foot traffic in the business districts where you usually park. Or maybe, despite partnering with hospitals and factories to provide food to their teams, you’re still not hitting your previous revenue levels. Either way, small business loans for food trucks can help you get back on track.
The challenges of obtaining small business funding for food trucks
Food truck owners may face challenges obtaining small business loans depending on their background. Lenders may feel that food truck owners with limited experience in food service, preparation, and truck operation are risky borrowers. They may also hesitate to provide loans to food truck owners with limited prior small business management experience. And since the food truck industry has only recently boomed in popularity, many lenders may lack experience setting up food truck loans, further compounding their hesitation.
That said, it’s far from impossible to obtain small business loans for food trucks – in fact, many food truck owners do exactly this to afford their truck purchases. Read on to find out how you can obtain low-cost small business funding for your food truck.
Financial options for food trucks
Finding small business loans for food trucks can be a bit tricky, but it isn’t impossible. Through SBA loans and non-government options, you might find your food truck properly funded before you know it. Discover your options below, and as you compare and contrast these possibilities, consider that no two small business loans have the same approval periods, rates, and fees.
The SBA 7(a) loan program
If your food truck qualifies for a low-cost SBA 7(a) loan, this option could well be your best. Food truck owners such as yourself stand to benefit especially strongly from SBA 7(a) loans’ long payment terms, not to mention their low rates and monthly payments. These loan qualities can allow your company to better save your money and grow (or, if needed, stabilize).
You can use your SBA 7(a) loan toward the following costs:
- Working Capital – Determine your working capital by subtracting your current liabilities from your current assets. A negative value means that you need more cash than you currently have on hand. SBA 7(a) loans can help you obtain this cash.
Food trucks should keep enough working capital on hand for stability no matter the condition of the economy. Through your SBA 7(a) loan, you can obtain more working capital by buying equipment, contracting third-party marketers or advertisers, or bringing on new employees. - Debt Consolidation Loans – Through SBA 7(a) debt consolidation loans, you can refinance your food truck’s current loans. These loans include merchant cash advances, high-interest business loans, daily or weekly payment loans, and short-term business loans.
Advantages of SBA 7(a) loans for food trucks
Small business lending experts often say that SBA 7(a) loans are the “gold standard.” Food truck owners such as yourself may appreciate their low rates and 10-year terms (or 25-year terms for commercial real estate loans). You may also find the following aspects of SBA 7(a) loans favorable:
- No prepayment penalties
- Affordable monthly payments
- Wide use of funds
- Available in all 50 states
Food truck requirements for SBA 7(a) loans
If you choose to apply for SBA 7(a) loans, you must meet certain criteria, including:
- You must be a U.S. citizen or lawful permanent resident
- You must be at least 21 years old
- Your food truck must be based in the U.S.
- Your food truck company must be at least two years old
- You and your company must be on-schedule with all government-related loan repayments
- Your business must have no outstanding tax liens
- Your business must have no recent settlements or charge-offs
- Your personal credit score must be above 650
- You must not have bankruptcies or foreclosures in the past three years
While most SBA 7(a) lenders institute these requirements, no two lenders have exactly the same rules. For example, while many lenders will ask for your food truck’s business plan, others (including SmartBiz Loans) won’t do so.
How to apply for an SBA 7(a) loan for your food truck
Step 1: Confirm that you qualify to apply for an SBA 7(a) loan. Find more information on the SmartBiz Loans page about SBA Loan Requirements for Existing Business to learn more.
Step 2: Your application will likely require extensive paperwork, so get started now. Additionally, consider asking your accountant or bookkeeper to help you with this step.
Step 3: Choose your lender. Consider the following traits as you do so:
Reputation
Check your lender’s reviews on TrustPilot, Google, and Consumer Affairs to find out what other business owners have said. Be sure you’re reading actual customer reviews.
Availability
Your lender should have regular phone contact hours and make themselves frequently available via email as well. Additionally, your lender should pair you with a lender familiar with your food truck, application, and the food truck industry.
Transparency
Your lender shouldn’t hesitate to be fully upfront with you about anything at any time. A lender who resists detailing your loan’s annual interest rate or APR is a red flag.
Obvious loan terms
Another red flag: Loan terms that are anything less than obvious. Look at the fine print of your loan agreement – if it’s anything less than perfectly clear, you may do better with a different lender. Complex fine print often masks payment schedules and loan costs that add extra financial burdens, so be sure to identify a total loan amount, required payment frequency and amounts, collateral requirements, and (if applicable) prepayment penalties.
Fees
Other than interest and repayment fees, you should see few other fees. If you see a large number of fees, choose a different lender. You should also confirm that all fees will be due before loan funding and during your loan’s lifetime.
The SBA 504 loan program
The SBA 504 loan program connects small businesses such as food trucks with low-cost expansion and modernization funding. If you need to upgrade your food truck, you may be able to do so through an SBA 504 loan.
SBA 504 loans are also useful if your food truck meets the public policy goals of your local community development corporation (CDC). In this case, your CDC may cover up to 40% of your costs. You could then use your 504 loan to cover up to 50% of your costs. You’ll pay the remaining amount through your own down payment.
The SBA microloan program
Through the SBA Microloan Program, you can obtain loans of up to $50,000 if your food truck qualifies as a very small business or microbusiness. You can use SBA microloans for all business purposes except debt payments and real estate purchases.
Non-SBA loans and other funding options
You have other options besides SBA loans for your food truck, but your other possibilities likely have higher rates, larger payments, and shorter terms. These possibilities are:
Bank term loans
If you don’t qualify for SBA loans, you may be able to quickly obtain funding through bank term loans. Through these loans, you can typically refinance your debts and obtain working capital. Make sure to ask about rates, possible loan amounts, repayment terms, and prepayment penalties.
Business lines of credit
Business lines of credit are funds from which you can regularly draw until you entirely drain them, though you don’t have to use all your funds. The amount of money you receive will vary based on your credit score, meaning you’ll likely get less funding than through a term loan. That said, business lines of credit may prove beneficial in some situations.
If interest is a concern, business lines of credit may work for you since you’re only charged fees on the money you actually use. Additionally, most business lines of credit are unsecured, meaning they lack collateral requirements. Learn more via the SmartBiz Loans blog Small Business Lines of Credit Pros and Cons.
Business lines of credit are also, like your business credit card, revolving lines of credit. The similarity, however, ends there, as only business credit cards last forever. They also offer spending rewards unavailable through business lines of credit.
Merchant cash advances
If your food truck accepts card payments, you may be able to obtain small business funding through a merchant cash advance (MCA). Your MCA is an upfront loan that you’ll repay as small portions of all business transactions or in regularly scheduled installments. While convenient, this option has extremely high APRs. Learn all about MCAs via the SmartBiz Loans blog What You Need to Know About an MCA.
Food Truck Funding Success Story
Darold Gordon is the owner of The Original New Orleans Po-Boy and Gumbo Shop in Austin, Texas. Darold was among four recipients of the SmartBiz® Boost a Small Business in Need Grant Program, and he used his grant money to stabilize his finances after the COVID-19 pandemic.
Following pandemic-era sales decreases and layoffs plus an unexpected fire in April 2020, Darold says, the grant “was a blessing for us. We were able to pay a maintenance worker who has been performing much-needed fixes for the restaurant.” Darold also rehired two formerly laid-off employees to cook from his food trucks. His grant proceeds make his simple goal even simpler: “We would like to continue serving good authentic Cajun food,” he says, “to the community of great people in Austin and surrounding areas.”
Why Choose SmartBiz Loans?
Need funding to rebuild your business? Don’t waste time going from bank-to-bank filling out multiple applications. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing. About 90% of qualified applications we refer to banks are funded and our financial professionals are on hand to answer your questions. Discover if you’re pre-qualified here without impacting your credit scores** and read the SmartBiz 5-star customer service reviews on TrustPilot.
