Using Your Own Funds for Your Mobile Food Business

Depending on how much funding you need to start your food truck business, you may find that using your own money is your best route. Making this decision can be very scary, but look at it this way: If you’re not willing to back up your venture with your own money, why would someone else?

More than 50 percent of small business start-ups are financed with personal funds. The beauty of this approach is that you’re financing your business yourself, and having a larger personal investment in your business is a big plus in your favor if you attempt to get a business loan in the future. The downside is that if the business fails, you risk losing all the cash and collateralized assets used.

If your business plan doesn’t require you to hire any employees or pay outrageous sums of cash for your truck’s permitting, licenses, and fees, chances are good that you can get away without having much to finance outside of the vehicle.

In almost all cases, prospective food vendors need to purchase a food truck, cart, or trailer, which means you’ll be spending some money. This fact alone means that unless you’re independently wealthy, you have to dip into your personal savings account, access your 401K, take out a home equity loan, get a personal loan, or tap into your unused credit cards if you can’t get a low-priced, used vehicle:

  • Dipping into your personal savings: Using your own savings to finance your food truck business is certainly tempting, but before you do, you need to understand the implications: Most importantly, you could lose all the money you put in. Most people have plans for the cash they’ve saved, so if you lose the money, those plans are no longer viable.

    It’s a harsh truth, but the reality is that the majority of new businesses fail. Even if you do everything right, bad market conditions may mean that you don’t stand a chance. Using your personal savings to fund your food truck business is a risky venture, but doing so can save you from having to pay interest on other forms of financing.

  • Tapping into your 401(k): If you’re considering this route, be aware that you’re putting your nest egg in jeopardy. The process of rolling your 401(k) into your new food truck business costs about $5,000 to get started, because you have to pass through significant legal steps to do it properly.

    The key is to roll over the money into a corporate retirement account that permits you to invest in your business. You or your financial manager will move your current 401(k) into a profit-sharing plan, which then becomes the retirement plan for your new company. You then use this new plan to buy up the stock of your new corporation.

    After the funds have transferred, they become tax-free capital for your business. In other words, you’re spending the money on your own corporation instead of for stock of another company.

  • Getting a home equity loan: A home equity loan is a low-risk way to secure funding for your mobile food business. The bank doesn’t care what you’re using the money for because they have plenty of collateral to get their loan back.

  • Applying for a personal loan: Taking out a personal loan is also a possibility for funding your business that keeps the business decisions in your hands.

    With this type of bank loan, you have to let the lender know what you plan to use the money for. The personal loan application process may be the first time you need to provide someone with a copy of your new business plan for review.

  • Using charge cards: If you’re like most Americans, you receive multiple preapproved credit-card offers in the mail every day. Now is the time to take advantage of these credit services. Using personal credit cards can be a risky means of financing your business because they weren’t designed for this purpose.

    However, if you’re aware of the costs involved, personal credit cards can temporarily fill the gap between raising start-up capital and getting your company into the black.

    Be sure you investigate the interest rates, annual fees, and late fee charges before you take this step. One way to help prevent paying late fees or being hit with higher interest rates is to pay at least the minimum payment every month and pay off the balance as soon as possible.

The downside of using personal assets to fund your food truck is that you have no guarantee of succeeding as a business owner. You could drain all your savings or retirement accounts, take a hit to your credit rating if you fall behind on loan payments, or even lose your home.

The key to determining whether self-funding your new business is feasible is to make sure that if your business fails, you haven’t sacrificed your family’s future.

Consult with a financial advisor or accountant before you begin the process of financing your food truck business. These professionals will help you assess all the risks involved, as well as give you the odds of a loan being successful. Getting a professional’s opinion can help you navigate through the risks and even find an alternate source of funding.

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