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Debt Capital: Business Loans for Your Mobile Food Business

If you decide to get a business loan for your food truck or cart from your local bank or credit union or the government, you have several things to consider. Ask yourself these questions, and be specific in your answers:

  • How is the loan going to be used? Are you going to buy your food truck with the loan? Are you going to use it to purchase a kitchen to have installed on a truck you already own? You need to think through these things because you want to make sure you get a loan that best fits the use of the money.

    You don’t want to finance the full funding of your truck with a 12- or 18-month loan unless the payment for that term works with your business plan.

  • How long do you need the terms of the loan to be? Be sure the type and length of loan fits what you’re using the funds for. For example, you don’t want to finance your initial food purchases or office supplies for 15 years. Look at multiple loans with different term lengths to minimize the amount of interest you end up paying.

  • What assets can you use as collateral? Collateral is any item you pledge against the value of your loan. If you default on the loan, the lender has the right to obtain the collateral from you in lieu of payment. Some items you can use as collateral for a business loan include home equity or your personally owned vehicles.

Local bank loans

In today’s recessionary time, banks are skeptical about lending money to individuals looking to enter the food truck industry. Not only do banks assume that food trucks have all the risks of starting a restaurant, but they also fear that the food truck industry may be just a fad that may disappear as fast as it began.

These lending institutions like to see a couple years of profitability before they dole out cash, but of course, most start-ups have no business history.

Banks aren’t interested in the potential of your food truck, only your ability to pay off the loan. To help cover themselves in the event of default, they rely on asset-backed borrowing, whereby they require you to back the loan with some form of collateral, such as personal vehicles or real estate.

You can actually use many things to back your loan, including the equity in your home or even your children’s college fund.

Another option is to have someone cosign the loan for you. You may have a friend or relative who doesn’t necessarily have the money to invest in your company but feels comfortable enough to cosign. Just make sure that person has a good credit record.

When you start visiting local banks, make sure you do the following:

  • Call for an appointment.

  • Dress and groom yourself for success.

  • Take multiple copies of your business plan and financial documents with you.

  • Be professional.

  • Be prepared to answer questions.

  • Show confidence in your plan.

  • Don’t appear desperate for the money.

  • Be truthful about everything.

  • Keep in mind that bankers only want to know how they’re going to get their money back.

You may have to visit many banks before you actually find one that’s willing to take a chance on you and your food truck business. Don’t get discouraged; if you’re turned down, follow up with the individual you spoke with to find out the specific reasons your application was rejected. By addressing these concerns, you increase your chances of being approved next time.

Government assistance for financing your food truck

The Small Business Administration (SBA) can help you get a loan for your new mobile food business. The SBA is a government agency that guarantees the loans that banks make to you. This backing gives your local lender a higher level of confidence in the likelihood of collecting on your loan. With less risk, a lender is more likely to approve a loan for your business.

If you happen to default on your loan, the SBA guarantees your bank that it will pay off a percentage of the loan even if you can’t. The guaranteed percentage depends on the amount of the loan.

With a standard SBA guaranteed loan, you can borrow up to $2 million; however, most prospective mobile food vendors don’t need this huge amount of capital to start up their operations. If your loan is for $150,000 or less, the SBA will guarantee 85 percent. If the loan is for more than $150,000, they’ll guarantee 75 percent.

The guarantee that the SBA provides doesn’t eliminate your responsibility to repay a loan. The guarantee is put into place only to reduce the risk to a bank, making it easier for the bank to lend you money.

Microloans are another option backed by the SBA. These loans are small, maxing out at $35,000 with a maximum term of six years. The SBA forwards your loan application to your local SBA-approved lender, and the final credit decision is made by the bank or credit union.

Some drawbacks of going through the SBA are the large amounts of paperwork and time delays that the approval process usually involves. You can expect the process to take several months. If you choose to apply for SBA backing, be sure you start this process quickly to avoid any additional delays.

You can find more information on the various programs the SBA offers.

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