Fueling Your Food Truck Dream: A Guide to Business Loans for Mobile Eateries

Owning a food truck offers you the opportunity to bring great food to new places and people. And with the right loan, you can make it happen. We’ll walk you through the process, and we’re here to support your journey with small business loan solutions tailored for food truck owners.

Exploring Loan Options for Food Truck Financing

To get your food truck business rolling, you should first understand the available loan types that can meet your unique needs and set you up for financial success. 

Many companies use credit score data to evaluate creditworthiness, but lenders typically look at FICO scores. A FICO score is similar to—but not the same as—your credit score. FICO scores assess risk based on on-time payment history, payment history, credit utilization, length of credit history, credit mix, and recent credit inquiries. Like credit scores, FICO scores also range from 300-850, and with a higher FICO score, you can get better loan terms and lower interest rates.

Secured Loans

A secured loan requires collateral, such as a vehicle or equipment, which reduces risk for lenders. Because of this lower risk, lenders are often able to offer lower interest rates on secured loans. Secured loans are generally a suitable choice for larger investments, such as purchasing a food truck, where the vehicle itself can serve as collateral.

Unsecured Loans

Unsecured loans don’t require collateral, which can be advantageous for borrowers without valuable assets. The higher level of risk for lenders, however, tends to result in higher interest rates compared to secured loans. Unsecured loans are typically offered to well-qualified applicants with strong credit histories, making them a viable option for some food truck startups.

Small Business Administration (SBA) Loans

Some food truck owners may qualify for government-backed loans through the Small Business Administration (SBA). SBA loans may come with more application requirements, but they offer favorable terms, such as lower interest rates and longer repayment periods. Government backing makes these loans more accessible than some other types, especially for new business ventures with higher risk, such as food trucks.

Line of Credit

Lump-sum loans aren’t the only sources of funding to explore. A line of credit is a flexible option that provides ongoing access to funds. This option is useful for managing recurring expenses, unexpected repairs, or emergencies as they arise. It allows business owners to borrow only what is needed and to repay what they borrow over time, making it a versatile tool for maintaining cash flow in a food truck business.

Key Costs to Consider When Starting a Food Truck Business

As you consider your funding options, it’s helpful to have a solid understanding of the costs you’ll need help covering. Most food truck startups involve the following investments and expenditures:

Vehicle and Equipment Costs

Purchasing a food truck can cost $40,000-$150,000, depending on whether you opt for a new or used vehicle and the features you’re after. You’ll also need to equip the truck with kitchen gear that meets health and safety standards.

Licenses and Permits

You’ll need to obtain all relevant permits for food trucks in your area, the costs of which can vary by location. This may include, for example:

• Business license
• Mobile food facility permit
• Food seller’s permit
• Public health permit
• Food service license
• And more

Insurance

Food truck owners must also reserve some cash for insurance policy premiums. Essential insurance includes:

• General liability to protect against lawsuits
• Vehicle insurance for the truck itself
• Workers’ compensation to cover employee injuries

Operational Expenses

In addition to startup costs and insurance, you should also budget for ongoing costs, such as:

• Ingredients
• Disposable products
• Fuel
• Equipment maintenance

These costs fluctuate with usage and demand, so you can get a better idea of what to expect going forward after you’ve been operational for several months.

Qualifying for a Food Truck Loan: What Lenders Look For

To increase your chances of securing a food truck loan, it’s important to understand the key factors lenders consider when evaluating your application:

• Credit score and history: Having strong personal and business credit helps secure financing at favorable rates. A strong credit score (680+) improves your chances of approval and lower interest rates. Lenders also check your credit history for missed payments or high debt. 
• Business plan: Well-documented market research, financial projections, and an operational plan show lenders you’re prepared and that your food truck is likely to succeed.
• Debt-to-income ratio (DTI): Lenders use DTI to gauge your ability to repay. A lower ratio suggests better repayment capacity, so keep your debt as manageable as possible.
• Collateral options: Valuable collateral (e.g., your truck or equipment) can help you secure a loan and reduce the lender's risk, improving your chances of approval.

Read “Everyday Money Management Tips For Small Business Owners” for guidance on managing finances and cash flow.

Managing Operational and Loan Repayment Costs

Being financially prepared and focusing on sustainable growth strategies will help you manage operational costs and stay on top of loan repayments as your food truck business grows. Follow these tips:

• Create a financial buffer. Smart business owners expect the unexpected. Set aside emergency funds for unplanned costs, such as repairs or downtime, so you’re not forced into taking on more debt.
• Monitor cash flow. Track revenue and expenses closely from day 1. Use accounting software to help you maintain a steady cash flow and ensure loan payments are covered.
• Prioritize repayment. Make loan repayments a priority to avoid late fees and protect your credit score. This will help you secure additional funding in the future.
• Expand revenue streams. Consider increasing your business’s income by branching out from street vending to offering catering or partnering with local events.

Hit the Road to Food Truck Success with the Right Financial Backing

Starting any type of business can be daunting, but with a passion for your dream and the right financial partner, you’ll be well on your way to success. iQ Credit Union is proud to support our business clients in a variety of ways, offering lines of credit and a variety of loans to meet your financial needs as your business grows. As a community-oriented credit union, we’re eager to help local businesses like yours get off the ground and continue to thrive at every stage.

Want to learn how to get a business loan? Start with our Business Banking Checklist to ensure you have all of the necessary documentation to begin planning for a successful food truck venture.