Contributed by Michael Woods of Fernwood Capital

We all know that high end SUV’s and luxury autos that are similarly priced to many food trucks are fairly easy to obtain. In most cases even with marginal credit one can essentially “sign and drive” without too much trouble. Food truck financing is much different. A food truck is a business. Therefore, financing of a food truck is a business loan and much different than buying a car or even a house.

Before inquiring about food truck financing there are some things to keep in mind

Be knowledgeable about your credit – The three credit reporting agencies Equifax, Experian & Transunion are required by law to provide you with one free credit report per year. There are also a number of other services and agencies that can get you information and help you monitor your credit report. You should know what’s on your credit report and have an idea of approximately what your score is when applying for food truck financing. If you declared bankruptcy in the last 5 years, have recent late payments, open collections or judgments, you should understand that the odds of obtaining financing for a business venture are very unlikely. There are no hard and fast rules in terms of a minimum credit score to obtain financing however, your credit should be generally considered as “good” or better.

*Established business owners are allowed a little more flexibility in regard to their credit scores than start-ups. In some cases, existing businesses can obtain 100% financing for food trucks

A word or two about start-ups– You may be the best cook in the world, be a hard worker, have a great plan and the best of intentions. The truth of the matter is that the majority of start -up businesses fail within the first 3 years, many within the first year. As a matter of fact, food businesses have one of the highest failure rates of any industry. With these statistics in mind, finance companies are very conservative when lending to start-ups. In most cases even with very good credit and industry experience, a finance company will only consider a $10-$20,000 loan to a start-up business. That means that if you only have $10,000 to invest, you probably shouldn’t be looking at shiny new trucks with all the bells and whistles. Save that for your NEXT truck a couple of years down the road.

You should have a business entity formed prior to making an inquiry- whether it’s a corporation, LLC or simple doing business as (DBA) certificate, you will need to have a business formed before applying. Ideally, you already have a catering or other food service business that has been around for a couple or more years.

Put together a simple business plan before applying– Put the pen to paper and figure out realistically how much food you think that you can sell at what price on a typical day, week or month. Now take into consideration your overhead costs such as ; food, labor, supplies, permits, inspections, commissary fees, waste fees for gray water and grease, gas, vehicle maintenance, insurance. Don’t forget taxes, payroll and other costs like accountants and attorneys. All this without even making a payment on the truck! Because food trucks can be risky to lend on, even with good credit you can expect to pay about $350 per month per every $10,000 financed (*estimated payment based on a 3 year term. Actual payments may be higher or lower based on credit.) Other terms available. After doing the math if it still make sense to apply for financing we would love to help.