Food Truck Financing With Bad Credit: How to Get It?

You don’t have to have perfect credit to get a food truck loan to launch or grow your business. Some lenders cater to borrowers with lower credit scores to provide lending options like SBA loans, a business line of credit, or equipment financing options. 

Understanding Food Truck Financing with Bad Credit

Can I Acquire a Loan For a Food Truck if I Have Bad Credit?

Yes, some lenders provide food truck loans specifically to borrowers with bad credit. You may have more requirements or pay a higher interest rate so the loan will cost more.

Depending on the lender, you may only qualify for a smaller borrowing amount. 

How Much Do You Need to Invest in a Food Truck?

Starting a food truck business may cost less than opening a brick-and-mortar store. You can buy a food truck new or used, but generally a used truck will cost you anywhere from $40,000 to $80,000.

According to the U.S. Chamber of Commerce’s Food Truck Index, entrepreneurs spend an average of $28,276 to start and operate a food truck for the first year.

In addition to buying or leasing your food truck, you will have expenses like:

• Licensing and permits
• Kitchen equipment such as ovens, fryers, grills, and refrigerators
• Inventory to get your started
• Auto insurance
• Fuel and maintenance

“The person who says it cannot be done should not interrupt the person who is doing it.” – Chinese Proverb

What Credit Score is Needed to Buy a Food Truck?

There is no set credit score required to finance a food truck since each lender can set their own requirements and terms.

However, some experts recommend you have a credit score of 680 or higher to get the best options.

Still, some lenders will provide food truck financing to borrowers with a credit score ranging from 550 to 640.

How Much Does it Cost to Finance a Food Truck with Bad Credit?

Financing costs for a food truck business depend on how much you need to borrow and your interest rate. Some lenders charge as little as 3% for equipment financing.

However, with a lower credit score, you can expect a higher interest rate.

For example, let’s say you borrowed $50,000 at a 3% interest rate with a 6-year repayment term. Your monthly payments would be $759.68 per month, and you’d pay a total of $7,947.23 in interest and fees over the life of your loan.

If you had a 12% interest rate for the same loan, your payments would jump to $977.51 per month and you’d pay a total of $23,630.69 in interest and fees over the life of your loan.

What Are the Best Food Truck Loans for Bad Credit?

With bad credit, it will be harder to find a bank or credit union to approve you for a food truck loan.

Instead, consider options like online lenders, an SBA loan, or a microloan which provides a smaller amount of funding.

Where Do You Find Food Truck Financing for Bad Credit?

Both business lenders and personal loan lenders can help you secure food truck financing for bad credit. The SBA offers business loans for a variety of U.S.-based businesses including microloans and working capital options.

The following lending institutions offer competitive loan rates and terms compared with other financial institutions. They are also geared toward small businesses which means they are sensitive to the process that small businesses are often faced with:  

• Fora Financial: They have over 35,000 businesses using their services and promote fast loan application approval with a simple registration process.

• Biz2Credit: Specializes in providing loans to new businesses that might find it a challenge acquiring loans due to their lack of a business financial history.

• OnDeck: They are the largest online business lender and over loan terms up to $250,000 and lines of credit up to $100,000. They also provide fast approval times.

You can also consider a loan comparison resource like our list of Best Food Truck Lenders to help you compare loan options side by side without submitting a formal application and agreeing to a credit check.

You can also go to SBA.gov to locate SBA lenders in your area and see what their terms and requirements are. The SBA also offers microloans which allow small not-for-profit, U.S.-based businesses to borrow up to $50,000.

How to Get Food Truck Financing with Bad Credit

Acquiring a food truck financing with bad credit is a similar process to getting any personal or business.

Most lenders allow you to apply directly online and streamline underwriting so you can get the money you need quickly.

Here are the exact steps to follow from start to finish.

Step One: Decide How Much Money You Need

Estimate the costs for your food truck business to determine a realistic loan amount. List out all the expenses you might incur and compare different food truck prices.

You don’t want to borrow too much or too little, but consider including a small buffer in the loan amount to account for unexpected costs so you can get your business up and running quicker.  

Step Two: Research Different Types of Loans

Research different types of loans to determine which option would be best for you. Some common options include:

• Business loans: You must have an established business or a well thought out business plan to secure a business loan. In most cases, you will need an established business credit score to qualify. Some lenders also like your financial statements including profit and income for the year.
• SBA Loans: SBA loans are guaranteed by the Small Business Administration which means they’re backed by the government. SBA-approved lenders offer 7(a) business loans, microloans, and 504 loans. A 504 loan can be used to repair real estate, equipment, machinery, or other assets. You can borrow anywhere from $500 to $5 million with an SBA loan.
• Business Line of Credit: With a business line of credit, you can draw from a specific loan amount as needed and you’ll only pay interest on the money you borrow. Similar to a credit card, a business line of credit lets you pay for expenses over time as they come up instead of receiving a lump sum loan amount.
• Equipment Loans: Equipment loans provide small to large-sized businesses with funds to buy equipment. If you have bad credit, you may need to put something down as collateral to secure the loan, such as the equipment you’re buying. 

Step Three: Select the Loan that Best Meets Your Needs

Once you’ve narrowed down the loan you want, start the application process by submitting your:

• Personal details
• Desired loan amount
• Social security number
• Financial information such as business income or profit

Step Four: Prepare the Necessary Documentation

When you submit a loan application, the process moves to underwriting where the lender carefully reviews all your details and requests more documentation.

The lender may ask you for bank statements, tax returns, proof of address, and other documentation.

If you’re applying for a business loan, the lender may ask to see your business plan. Try to round up all the necessary documentation you may need early on so you can submit it in a timely manner.

Step Five: Complete the Application

After your loan application and documents have been submitted, the loan will go into a processing stage. Depending on the type of loan, processing can take 48 to 72 hours or several days or weeks.

Step Six: Review the Loan Terms

Once you’ve been approved for a loan, carefully review the loan terms to make sure you understand:

• How much you’re borrowing
• The interest rate (when it accumulates)
• Any fees or additional costs
• The repayment term
• How and when to make payments

This is the perfect time to bring any questions to the lender to clarify the terms before you agree to them.

Step Seven: Receive the Capital

Once you accept the loan terms, the lender will release the funds to you within one to five days on average.

Some lenders may have a longer time frame depending on the loan and their terms so be sure to clarify when the funds will be officially released to you.

“You may be disappointed if you fail, but you are doomed if you don’t try.” – Beverly Sills

Food Truck Financing with Bad Credit: Tips for Getting Approved

Bad credit isn’t permanent and you can take steps to improve your credit with time.

Fixing your credit will improve your chances of getting approved for food truck financing and give you more options.

Pay Off Debts

Too much debt can lower your credit score because it increases your utilization rate. Your credit utilization rate is calculated by dividing your total revolving credit limit by your current credit balances.

So for example, if you have a $5,000 limit on a credit card and a $1,000 balance, your credit utilization rate would be 20% (1,000 divided by 5,000 = .20 = 20%).

Paying down your debts can also decrease your debt-to-income ratio (DTI). Your DTI represents all your minimum monthly payments divided by your monthly take-home income.

Business lenders like to see a DTI under 40% so paying down your debts can help you remain under this amount.

Improve Your Credit Score

You can improve your credit score by focusing on the factors that impact your credit the most. A general rule of thumb is to keep your total credit utilization below 30%.

Focus on paying down high debt balances by putting any extra money toward your accounts to pay more than the minimum. You should see your credit score increase soon after since your debt balance is one of the biggest factors that impact your credit score.

Also, you can avoid hard inquiries by limiting your credit applications and keep accounts open longer if you can since this will extend your overall credit history.

Make a Down Payment

If you can afford to make a down payment on your food truck loan, this can make your application seem stronger even if you have bad credit.

The downpayment demonstrates that you’re serious about obtaining and paying back the funds and can be used to secure your loan as well.

Your down payment amount can vary depending on the lender and type of loan, but generally, 10% to 30% is a reasonable amount to put forth.

Pre-Qualify for Loans

Some lenders or loan networks allow you to pre-qualify for a loan without submitting a formal application.

This will just result in a soft credit pull and allows you to see loan terms and rates because you apply. As a result, you can shop around to compare the loan option that best meets your needs. 

Get a Co-Signer

A business loan co-signer is someone who applies for the loan with you and guarantees they’ll make payments if you are unable to.

If you have bad credit, choosing a co-signer with good credit can also help you get approved for a loan. You will just need to find someone you trust who feels comfortable signing a loan agreement with you. 

Alternatives Types of Food Truck Financing

A traditional business loan is just one way to get food truck financing. Here are some other alternatives to consider especially if you have bad credit. 

Personal Loans

• Personal loans rely on your personal credit history and financial profile. You can usually borrow anywhere from $1,000 to $50,000.
• Banks, credit unions, online lenders, and peer-to-peer marketplaces all offer personal loans.
• Some lenders cater to borrowers with bad credit or allow you to use a cosigner and these are the personal loan options you should consider.

Crowdfunding

• Crowdfunding involves raising money for your venture or project from several different sources.
• Crowdfunding campaigns are usually run via the internet which makes it easy to share what your venture is and how it will help people.
• From there, you can promote your campaign and try to raise the money you need to get started by a specified date. Kickstarter and Kiva are popular crowdfunding sites to consider using. 

Grants

• Grants are funds that you don’t have to pay back. You’ll still need to apply for certain business grants (such as food truck grants) and meet the eligibility requirements.
• The SBA offers business grants as well as private and non-profit organizations.
• You can also check with your local chamber of commerce to see if there are any grants you could apply for. 

Credit Cards

• You can also use a personal or business credit card to get your food truck business up and running. A business credit card will offer a higher limit to help you cover more expenses.
• Keep in mind that credit cards tend to have much higher interest rates than some loans, especially if you have bad credit. 

Home Equity Line of Credit

• If you own a home, you can take out a Home Equity Line of Credit or HELOC by borrowing from the equity in your home. With a HELOC, you can borrow money as needed from a revolving line of credit.
• These loans also have variable interest rates, but you can use the money for several expenses including funding a business.

“If you can dream it, you can achieve it.” – Zig Ziglar

Borrow from Family and Friends

• You may have friends or family who are willing to loan you money for your business. Just be sure that you and the other person understand whether the money is a gift or loan.
• If it’s a loan, write out a formal agreement so you both can agree on the terms including whether you’ll pay interest. Be realistic in terms of how much you can afford to repay your loved one in a timely manner.

Final Word

Food truck financing doesn’t depend solely on your credit. There are several loan options to consider for bad credit.

Lenders may charge more interest or higher fees, so it’s important to estimate your expenses for your food truck business to ensure you can repay the loan on-time.

Try to get prequalified for a loan first and shop around to compare rates and terms. Use our food truck financing business loan recommendations to start shopping around for loan options.