The food truck industry is currently growing and can be a great industry for people to begin making their way into. Overall, the industry is currently worth over one billion dollars and is expected to grow by over 3% this year alone. Making it a great option for those who enjoy food trucks, want to run their own small business, and enjoy being on the move. So now you may be wondering, how can you finance a food truck?
To best get financing for a food truck look into fundraisers, bank loans, finding investors, and federal grants there are several options to consider. Each one can be timely in executing, however, they can all be beneficial towards your goal of financing a food truck.
Grant, loan, and financing options can change depending upon your location and financial assets. This means that additional research and time will be needed to adequately know your specific options.
- Fund Raisers
One of the easiest, yet more long-term, ways to gain financing for a food truck is through fundraising. This may not be the most effective or timely way to do so, yet it can help you get your foot in the door. In the sense that if you need a set amount of capital to receive a loan or apply for a grant fundraisers can help you to raise that amount.
These events can take form in several different ways. You can raffle off a cooking class to a lucky winner. That could mean selling tickets for $2 to $5 each and picking a winner or two to learn your most popular dish. It would be a great way to also gain publicity around the community and get people talking about your business.
Or you can sell tickets for a catered lunch. Set a menu for a specific number of people, to help make it more affordable on your end, and sell tickets. The winner will be able to choose a preselected date based on your availability to have their lunch catered. Tickets could be sold for $10 to $20 each since the lunch would cost a decent amount. However, the ticket prices should offset the costs allowing you to raise money.
- Take Out A Loan
Whether you decide to go through a bank or private loan servicer, you have options. Believe it or not, there are even lenders who specialize in providing loans for food trucks to get them off the ground.
One lender, known as Food Truck Lender, allows you to apply for loans amounting to anywhere from one thousand to forty thousand dollars. The interest rates do vary from six percent to almost thirty-six percent though depending upon your credit score and risk level. Loans can be taken out for a year, three years, or five years depending upon your needs.
Or if you prefer to go through a bank directly, business term loans tend to be a go-to option for food truck owners. They are ideal for a business owner who has an idea of just how much money they will need to get their business up and running. The amount will need to be repaid in full by the agreed-upon term duration.
When going the loan route, try to ensure that the details match your financial status, estimated income, and predicted profits. You do not want to take a loan larger than what you will be able to pay back while running your truck. It can be beneficial to discuss your financial standing with a professional at this point.
- Find Investors
The great thing about investors is that there are a few different types to consider. Each one has different characteristics beyond just having money on hand to invest. Whether that be an angel investor, peer-to-peer investor, or personal investor.
Angel investors are considered to be individuals who make over a certain threshold, annually. This amount is around two hundred thousand dollars. Or they can have a net worth amounting to a million dollars or more. Their niche is typically small businesses and entrepreneurs. They typically aim to help venture capitalists or those attempting to get financing help for the first time.
Whereas peer-to-peer investors or lenders can be groups of people or individuals. This type of funding does tend to be more centralized and requires an application. Those interested in lending money will work with a company to find a specific business or business that they would like to help finance.
Lastly, there are personal investors to be considered as well. This could be a friend of yours, a family member, or someone you have networked with previously. Startups and new businesses may only be allowed to have a specific number of investors though, so ensure that you check your state’s regulations.
Those are three of the more common types of investors that you may see financing a food truck. However, you can also attempt to do crowdfunding. This occurs when a larger group of people donate smaller amounts of money towards a business or project idea. These smaller amounts are considered to be donations, meaning that none of the donors will own any stake in your business.
There are different platforms for different needs, so take some time to figure out the best one for you to be on. Also, make sure that you are reading the fine print on these websites and know everything that you may need about their terms and conditions. This will prevent you from losing any donations or misleading those who donate.
Some require you to set a goal and if it is not met, you receive none of the donations. With everyone who supported you getting their money back. All because a pre-established goal that may have been a bit adventurous was not met. Making it more of an all-or-nothing situation in some cases.
- Apply For Grants
Depending upon your business address you can look up and apply for grants. The best thing about grants is that you do not need to pay them back. So while they may not cover all of your initial expenses when beginning, they can help you have enough capital to receive a loan. Or move you along in your application process.
This means that no grant is too big or small for you, as long as you fit the requirements. Some states require you to live in a specific area (rural vs urban) or fit a specific group (small business, minority-owned, etc.) to receive a specific grant. They do vary by state, city, and location. However, millions of dollars are rewarded to small businesses yearly to help them finance their business.
In most cases, you will be looking at small business grants and applying for those. However, you can contact your local small businesses office to see if there are any other grants they know about, that you may qualify for. You just need to keep applying and trying when it comes to grants. Every bit helps you reach your goal.
Whichever way(s) you chose to go about financing your food truck, just be sure to conduct your research and speak to any professionals that you may need to. Money can be difficult to understand and deal with.
So the four ways to best get financing for a food truck are through fundraisers, taking out a loan, finding investors, and applying for grants. Each option can take time and require a deep dive when it comes to research, but these are your best options when trying to finance a food truck.
Frequently Asked Questions
- Why do banks require me to have an initial amount of capital before I can receive a loan?
The banks want to see that you know what you are doing with your money and can manage it well. It shows that you took the initiative and have been working towards this goal. You are not just asking for money on a whim but rather you have a plan and some of your own money to contribute towards it.
- Which type of financing would be most beneficial for me?
Every type of financing can be beneficial, it just depends upon your personal preferences and needs. If you want to retain full ownership of your truck, then a loan and grants may be ideal. However, if you want a partner to help make decisions and run operations, then an investor may be right for you. A loan may also take less time to acquire, than fundraising, which is another factor if you ideally want to open sooner than later.
- Are investors entitled to a portion of my business’s profits?
Yes, anyone who has invested in your business will be considered a shareholder. Ensuring that this is understood by all parties and the proper paperwork is completed before receiving the investment is key here. Their portion of your business will be dependent upon their investment. Some may own ten to twenty percent of your company. A good rule of thumb though is to always retain at least 51% ownership of your business. This allows you to continue having the most say in decisions.
To learn more on how to plan your own food truck business click here!
Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.
About the author. A lifetime of Entrepreneurship.
Hi! My name is Shawn and I am a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop (link here http://archives.starbulletin.com/2003/05/18/business/index.html) to an import and export business to an online review business plus a few more and now I create online resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet new business owner, I see myself. I know how hard the struggle is to obtain and retain clients, finding good employees and making sure everything works together all while trying to stay competitive.