Food trucks, delicious and economical, continue gaining popularity in local markets as an excellent entry or mainstay into food service in the United States. While considerably less capital is required to build or acquire a food truck versus a brick and mortar alternative, they remain an expensive business to start up and many food-entrepreneurs have found it difficult to obtain financing.
Pelagic Capital Corporation has been in the equipment financing industry for decades and has helped fund many different types of food trucks. As a result of our experiences combined with information from a prior article published by FoodTruckr, we have come up with the 3 most common ways on how to fund a food truck:
Coming up with the funds to self-finance your food truck isn’t easy, but it is a highly effective way to getting your truck on the road.
Benefits: The best benefit of self-financing is that you won’t incur any debt. Every path to food truck financing involves taking on risk, but in this case, you’ll know exactly what you’re risking upfront and you won’t end up paying a bank interest charges. For the entrepreneur who is determined to bootstrap his or her way to success the old-fashioned way, self-financing is a great option.
Challenges: Naturally, the most challenging aspect of self-financing is coming up with the money in the first place. If you do already have the money in savings, be sure that it’s money you can really afford to do without. Don’t cash in your retirement fund or life savings for an unpredictable startup business.
How To: Analyze the costs and risks associated with starting a food truck and determine whether or not you feel comfortable investing your savings in this path. If you’re determined to self-finance but you don’t have the money saved yet, you’ll have to start earning more or spending less until you reach your funding goal.
For many food truck owners, crowdfunding websites like Kickstarter and GoFundMe are an appealing financing choice. Crowdfunding sites are a quick way to finance your project without taking on a huge debt. You can request funding for all or part of your food truck business and people can donate any amount they choose.
Benefits: Crowdfunding is an easy and fast way to get the money you need for your food truck without going into massive debt. These sites are also a great way to begin building an audience before you’ve even launched your business. Your backers receive small rewards for donating towards your cause and everyone who has donated wants to see you succeed!
Challenges: Crowdfunding campaigns require a lot of work and commitment to success. You’ll need to design a compelling campaign with great incentive bonuses because with many crowdfunding sites, you won’t receive any of the money if you fail to reach your final goal. Also if you receive funding, you need to be ready right away to start delivering on your plan and dishing out the small rewards promised to your backers.
How To: Choose one of the major crowdfunding sites and set up your project with details on your proposed food truck plan. Then, begin advertising and let people know what will be so special about your truck. You also need to create (and fulfill) the rewards system for the people who donated to your cause.
3. Loans and Investors
If you don’t have much money available to you, you may want to consider the economic viability of taking out a loan or finding an investor to finance your food truck.
Benefits: Getting a loan or investor is one of the fastest ways to get money. However, you’ll need to spend some time preparing your business plan and researching all the financial factors such as costs, anticipated profits, and expenses. Creating a business plan should give you a good indication of what it takes to run a prosperous food truck, which you can then use to find the right bank or lender for your business.
Challenges: There are a couple challenges you’ll encounter before getting a loan or investor for your food truck. The biggest challenge is qualifying for financing. Potential lenders and investors get to check your credit history and learn about any existing debts or outstanding account balances. Also, be aware you might not see a very high percentage of your food truck’s first profits. If you get a loan, most of your first profit will go back to your lender with interest attached. If you have an investor, you’ll be sharing the profits with the person or organization who helped you get started.
How To: Gather all of your financial records, business plans, and any other documentation you have before seeking a lender or investor. Set up a meeting and be ready to answer all sorts of questions about the viability of your food truck business and how quickly you expect to begin turning a profit. It’s up to you to sell the lender or investor on why your food truck business has a real shot at profiting. Walk into the meeting fully prepared with many facts, figures, and industry analysis to show them you are for real.