Every entrepreneur starts with a dream.
And the beauty of entrepreneurship is that the dream could be anything. Some set out to change the world on a vast scale, while others just want to change lives — one at a time if need be. However, in both cases, the passion for the industry is crucial.
If you’re dreaming of becoming a food entrepreneur and launching your very own food truck business, but you are unsure where to start, read on. We have some advice on breaking into the food truck industry, especially when it comes to finding the funds you need to get started!
When starting a food truck business, some requirements are a given. The first requirement is that you have to be a good chef with an insurmountable passion for food. After that, it gets tricky, especially for future entrepreneurs who don’t have a background in business or marketing.
You’ll need a great business plan, and a way to secure funding to get yourself started. The main expenses will include the truck itself, as well as the equipment and inventory — so it’s not a small feat. Furthermore, your future success will depend on how high your return on investment gets: no one can sustain a business that loses money for a prolonged period.
When it comes to getting funding, a lot will depend on your credit score. Unless you take the crowdfunding route, you’ll likely get funding via a loan. And while having bad credit makes it more challenging to get a loan, it’s still possible.
Mediocre to bad credit is going to be a hurdle when it comes to securing a loan for your future food truck business. It’s possible to get approved, but the terms aren’t going to be as good as they would have been if your credit were better.
To get a loan when you have a less-than-ideal credit score, you’ll have to secure a cosigner — someone who has a good credit score. In addition to that, you’ll also need collateral and enough cash for a down payment. However, you have to keep in mind that even in this case, you might not get approved. So if it’s possible, work on getting your credit score to a higher value.
If you have good or excellent credit, it will be easier to get a loan for your food truck business. Furthermore, with your chances of approval going up, it’s also becoming more likely that you’ll be able to get some good loan terms. Of course, the specifics will depend on the lender, loan type, as well as your credit score and history.
You’ll likely still need collateral and cash for the down payment. Depending on the lender, you might expect to pay as much as 50% in assets or cash, so don’t go into this without proper research and consideration.
An idea won’t be enough to get you financing and prove to the lenders that your food truck concept will be financially viable. Don’t rush into trying to find funding before you’ve worked out a solid and thorough business plan.
That includes market analysis, your financial projections, as well as other business-related plans such as employee management. In other words, you need to know exactly what you’re going to do and how before any lender will give you funding to go out and do it. Improvising is not an option.
There are different types of loans and means of getting funding that you can consider. The first and most commonly chosen one is a standard bank loan. Whether or not you will get one largely depends on your credit score and your business plan. However, it’s important to note that not many banks agree to finance a mobile cuisine business, at least not if it’s a start-up.
For that purpose, you might be better off applying for a microloan provided by the Small Business Administration. The maximum amount you’d be able to receive is $50,000, which is often more capital than a start-up business owner needs. Typically, microloans are about $13,000, and they don’t have the same strict criteria regarding the credit score that standard bank loans do.
Finally, there’s the already mentioned option of crowdfunding. It’s usually more effective for unique, innovative start-ups, as that makes it easier to get backing and supporters. However, crowdfunding can still be an effective funding alternative, especially for a local setting where a food truck would fit well.
If you want to get your food truck business started right, it’s important to dedicate as much time to developing your business concept as you do to securing funding. Don’t neglect one in favor of the other, as that will make it difficult to get the business off the ground.
When it comes to the financial aspect, it’s important to look at how much your start-up will realistically cost and make decisions based on that estimate. Sometimes business owners will borrow a smaller amount for a lower interest rate, but they may later realize that they can’t get their business going without more money. First, get the capital you need, and then compare interest rates between different offers.
Starting a business is never easy, and there are many different hats the business owner must wear. Especially in the food truck industry, your skills as a chef won’t matter as much as your business savvy and the ability to secure funding — at least not at first. With these tips, we hope you’re one step closer to realizing your dream of becoming a food truck business owner.
Chris Fuller went to the University of South Florida and has worked in the financial sector for over 20 years. He has extensive experience in all aspects of personal and small business lending, from personal loans, equipment finance to cash flow based solutions for small mom and pop businesses, and large corporations.