Starting a food truck business is a dream many can’t wait to actualize. But what if your financial history is not as appetizing? A bad credit can seem like a closed door in the world of food truck financing. Yet, there are ways to unlock this door and get the funding you need.
You can boost your approval odds by understanding the basics of food truck financing. This article explores practical and funding options to help you hit the road with your mobile kitchen, even with bad credit. Let’s get started.
IMPORTANCE OF FOOD TRUCK FINANCING
Apart from saving your business from the impact of a sudden cash reduction, financing your food truck offers multiple advantages. Here are some reasons food truck business owners opt for financing their trucks:
REDUCED UPFRONT COSTS
Financing helps you avoid the strain outright purchases can have on your business by allowing you to make lower monthly payments over a period of time. This is particularly beneficial as it allows you to retain cash for your daily business operations.
ABILITY TO PURCHASE BETTER TRUCKS
Business owners who buy out of pocket are limited to purchasing vehicles that are within their purchasing power, and this can sometimes mean settling for used or lower-quality vehicles. On the other hand, getting a loan directly increases your purchasing power, enabling you to buy your dream truck.
INCREASED BUSINESS EXPANSION POTENTIAL
If you are aiming to expand your food truck business to include more locations, then expanding your fleet is non-negotiable. Financing provides you with the cash resources to grow your business, either by upgrading your existing vehicles or expanding your fleet.
IMPROVED BUSINESS CREDIT
By securing funding, you indirectly build your credit score. With your credit history showing a record of consistent loan servicing, you are well on your way to earning the trust of lenders in the future, which can be an indispensable asset when the opportunity to expand comes up.
TAX BENEFITS
You can also reduce your tax responsibilities through financing, as most loan expenses are tax-deductible. By saving on taxes, you can divert additional funds to your business for growth.
CREDIT REQUIREMENTS FOR FOOD TRUCK LOAN
With these benefits, there’s no denying that financing saves you a lot of stress. But getting funds is not as easy as walking up to a lender and hoping they will let go with thousands of dollars. Many factors determine whether or not you will get a loan and a major one is your credit history.
As it appears, lenders want an assurance that you can pay back your loan, and examining your credit history is one way they do that. Your credit history is a record of how you have managed your credits and debts over time. It includes details about your credit accounts, balances owed, payment history, and the length of time each account has been open. In a nutshell, it is like a report that lenders use to prove your creditworthiness. Here is a breakdown of FICO scores to help you know what to anticipate:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800-850: Exceptional
In most cases, lenders will expect you to have a score of 670 and above to consider you for a loan. This does not mean you can’t get funding with a lower score, but a strong financial history can help you enjoy better loan options, lower interest rates, and flexible repayment plans. You can build your financial record by making timely payments, keeping your balances low, and avoiding opening multiple accounts within the same period.
HOW DOES BAD CREDIT IMPACT FOOD TRUCK FINANCING?
Having a less-than-required credit score is not a death sentence. In fact, many lenders could overlook your FICO score and give you funding. However, this does not come cheaply and there are some downsides to it.
- Collateral: Lenders would expect collateral to give you funding, and in most cases, this will be the food truck.
- Limited loan amounts: A lower FICO score puts a cap on the number of options you have. Plus, loan amounts can be significantly impacted.
- Higher interest rates: There is a perceived level of risk that comes with funding businesses with poor financial history, which makes lenders tend to increase their interest rates.
- Down payment: Lenders can demand a hefty down payment to improve your chances of getting a loan and this can range from 10-30%.
- Shorter repayment terms: Lenders may offer shorter repayment periods, resulting in higher monthly payments.
- Hidden fees: Truckers with low FICO scores can also be subjected to paying some hidden fees which can increase the overall cost of financing.
FOOD TRUCK FINANCING OPTIONS WITH BAD CREDIT
If you are considering getting financing with bad credit, there are a lot of options available to you out there and you can give it your best shot. Let’s explore some of these options here:
EQUIPMENT FINANCING
Tailored to help businesses acquire equipment, equipment financing can help you get a food truck to kickstart your business. This type of loan will demand that you use the equipment as collateral. You can also expect to pay a higher down payment up to 20% of the loan.
Length for repayment can range from between months to years, and the interest rates depend on agreed-upon terms. On the upside, you get to own the vehicle after paying the loan.
LEASING AND LEASE-TO-OWN PROGRAMS
Leasing is probably one of the best financing available for business owners with poor financial history. Unlike financing, leasing does not require intensive credit checks and inquiries, and this is because it demands lesser financial commitment. By choosing to acquire a food truck using the lease route, you can get a food truck with lower upfront costs.
Another important thing to note is that when you lease a food truck, you get to use for the period of financing. However, you do not get to keep the vehicle after the financing period is over. This can also come with other limitations such as the inability to customize the truck or make permanent changes. The lease-to-own program, on the other hand, allows you to make regular payments with the goal of ownership at the end of the term.
SMALL BUSINESS ADMINISTRATION (SBA) MICROLOANS
SBA loans give small business owners access to about $50,000 for various business needs which you can use to purchase a food truck. They often have lower requirements and competitive interest rates, making them for those with bad credit.
ALTERNATIVE LENDERS
You can find alternative lenders online that can provide you with food truck financing with bad credit. These lenders provide tailored financing solutions for people with different financial records, making them an ideal choice. They also have flexible qualification criteria and approval processes.
STEPS TO SECURE FUNDING WITH BAD CREDIT
Now that you know that bad credit cannot stop you from getting food truck financing, you want to ensure that you put your best foot forward to get funded and at bearable terms. You can explore the following steps to achieve this:
- Enhance your financial history: Pay attention to your financial records and sort out issues that may keep your score low. Address outstanding debts, make timely payments, and avoid opening too many accounts within a short period. During your search for a financing partner, steer clear of lenders that conduct hard inquiries as this can temporarily reduce scores.
- Consider additional collateral: You can boost your chances of getting favorable loan terms by offering additional assets as collateral.
- Use a co-signer: In the absence of additional collateral, consider going with a co-signer with a healthy FICO score to bolster your application.
- Consider alternative lenders: Explore online and lenders specializing in bad-credit business loans to give you the best chance.
GET FOOD TRUCK FINANCING WITH BAD CREDIT WITH INSPIRED FUNDING
Bad credit does not have to stand in the way of getting your dream truck and starting your food business. You should consider reaching out to Inspired Funding, a specialist in helping businesses with less-than-required FICO scores get the financing they need to acquire the vehicles they need and get their business running as soon as possible.
ABOUT INSPIRED FUNDING
Inspired Funding has helped hundreds of truck companies secure the vehicles they need to succeed. Whether you’re expanding your fleet, starting a new business, or navigating bad credit, we’re here to make financing simple and stress-free.
We specialize in truck financing designed to get your business on the road to success. From box trucks and dump trucks to cargo vans, semi-trucks, and other vocational vehicles, our process is easy. Get guaranteed low payment on used trucks and no hard pulls on credit scores.
With competitive interest rates, flexible down payments, and manageable repayment plans, you can focus on growing your business without the stress. Start your journey to funding today!
