Opening a food truck is expensive. Between buying the food truck itself, paying for the necessary permits and licenses, getting cooking equipment and tools, paying rent at a location, and tons of other small expenses, it can seem impossible for the average person to get together enough funds to pay for a food truck.
In this blog, we will explore the different options you may have to get funding for a food truck, and explain some of the costs that go into starting a food truck business.
Cost of starting a food truck:
The cost of starting a food truck can vary wildly depending on what type of food truck you’re starting and the location your operating in.
Just like how living expenses vary from city to city, the same will apply to food trucks depending on rent costs, food cost, labor cost, and more.
Here are some food truck costs to consider:
The food truck or trailer itself:
Local regulations may require your food truck to meet certain criteria, so you may not be able to just buy any food truck or trailer and have it be able to operate in your city or county. Research your local requirements to make sure the truck or trailer you buy will comply, or be sure that you’ll be able to modify it to meet the requirements.
Depending on what equipment you’ll need in your food truck or trailer the cost will change. A small coffee cart may be closer to $20,000 in all, while a large BBQ cart may be over $100,000 because of the equipment needed and extra size.
I bought a cargo trailer and paid a company to turn it into a food trailer. The company bought all of the equipment and installed it, cut doors and windows, and installed a plumbing and electrical system. I paid about $75,000 for my food trailer plus equipment (this price also included the Washington Labor and Industries inspection).
Estimated food truck/trailer cost: $20,000-$100,000+
Startup costs:
Startup costs are the initial costs associated with getting a business up and running. They will vary in price depending on your location and the scope of your food truck business.
- Permits and liscences costs: a few hundred to a few thousand
- Kitchen equipment and utensils: a few hundred to a few thousand
- Starting inventory: a few hundred to a few thousand
- Training cost (if you are hiring employees): a few hundred to a few thousand
- Initial rent: a few hundred to a few thousand
- Business insurance: a few thousand yearly
- Propane and fuel: a few hundred
- Point of Sale system: a few hundred to a few thousand
Remember, the type and scope of your food truck will cause these costs to fluctuate.
Safety net:
I think it is important for any new food truck to have a safety net before they open. Many sources recommend having 3-6 months of operating expenses on hand to help prevent a financial crisis if your business is hit with an unexpected expense or closure. Depending on how expensive your overhead is this may be between 25 and 50 thousand dollars.
Realistically, that may not be possible to keep on hand, especially at first when you’re just starting your food truck business since there are so many other costs to consider. Start with what you can and build it up as much as possible as you go, but please start out with at least a month of operating expenses set aside, you don’t want to set yourself up for failure if something unexpected happens.
It might be beneficial to put your safety net money into a high-yeild savings account so that it is easily accessible but also earning interest monthly.
Operating expenses:
- Labor: If you plan on hiring employees your labor expense will add up quickly. Not only is their the dollar amount for each labor hour (unless you’re paying salary) but there is federal and local also tax added on top. Remember, you have to pay this with cash on hand, not a credit card.
- Food cost: The only way to make money in a food truck is selling food, which means you’ll need to buy ingredients and food products before you ever make a sale (unless you’re doing catering then you may get a deposit to pay for the food).
- Overhead: rent, insurance, phone bill, internet, POS costs, grey water disposal (if it applies to you), utilities, website expenses, and more.
- Additional expenses: propane, gas for transport (if applicable), advertising expenses, maintenance expenses and more.
Like I have said, the cost of starting your food truck will be totally unique to your situation. Costs will vary depending on your location, the size and type of food truck or trailer you choose, and more.
How to pay for a food truck:
Now that we’ve covered costs associated with opening and running a food truck, here are some of the main methods people use to pay for a food truck business.
Out of pocket
The most obvious option for paying for a food truck is by using your own money, and paying out of pocket. You can use money from savings, your retirement, your paycheck, or any other personal funds or cash to pay for a food truck.
Depending on your situation, you may already have cash on hand that you can use to pay for a food truck or trailer, or you may be hoping to save up over time. It may take a while to save up enough to pay for a food truck and startup expenses outright. Nonetheless, this strategy Is the lowest risk option since you won’t have to rely on getting a loan or any form of capital that may come with interest charges.
If you want to pay out of pocket but want to earn extra money, here is a list of food industry side hustles. If you want an easy side hustle to start here are my tips for making over $20 per hour driving with DoorDash (this works for other delivery driver sites like GrubHub or UberEats too).
Personal loan
A personal loan is a viable option for people looking for food truck funding. The amount that you can get a personal loan for depends on your credit worthiness, your income, and other factors. You’ll find that it may be much easier to obtain a personal loan compared to a business loan and you’ll have many more options. Keep in mind that if you take out a personal loan, it will start accruing interest and you’ll have to make payments monthly, even if you haven’t opened your food truck yet.
Be sure that the funds you get from the loan can be used for paying for a food truck. Some lenders set specifications for what the money can be used for.
Credit cards
Paying for a food truck business on credit cards is apparently very common. It’s actually what I ended up doing and when I talked to the people building my food trailer, they said that that was the most common way they’ve seen for people to pay for their food trailers and trucks. Paying for a food truck with credit cards can be incredibly risky as credit cards tend to have high interest rates.
One strategy to buy yourself some time when using credit cards to pay for your food check is to take out new zero-interest credit cards. Most credit card companies now offer zero-interest credit cards for a limited time, often 12 to 15 months. During this period any charges you make will not have interest accrue. If you still have a balance after introductory period ends, then it will start accruing interest that you will have to pay.
It is highly likely that if you start a food truck on credit cards that you will end up paying some interest even if you have a zero-interest introductory period. That being said, it may be one of your only options and at the end of the day, it may be worth it to pay some interest in order to follow your dreams.
Credit card interest can add up quickly. For every $10,000 you have in debt, it will likely accrue somewhere between $1,500 and $2,800 in interest yearly (this depends on the APR and could fluctuate). Before taking out credit card debt to pay for a food truck, find out how much you’ll need to cover the minimum monthly payments, and how long it will take to pay off the debt in the long run. Ask yourself if you are willing to take on that commitment.
Depending on your credit score and current income situation, it could be hard to get enough credit freed up to pay for a food truck. So you may need to use an alternative funding source to help pay for the rest. Also, you may be able to take out business credit cards when you start your food truck business even before you open, this could be a great option for additional credit cards if needed.
Fundraising
Another way to pay for a food truck is through fundraising. There are a few different ways that you can fundraise, but make sure that you are complying with any legal or site-specific requirements before you begin. There are online sites like Go Fund Me where you can take donations from friends, family, and even strangers, and there are also sites like Kickstarter (which is geared for businesses and projects) where you can fundraise while also giving your supporters something back.
I did a Kickstarter campaign to help pay for my food truck, and I offered different reward options depending on the tier. Some rewards were branded shirts and hoodies, while others were meals that people could redeem when the food truck opened.
Chances are that your friends and family want to help you reach your goals and they’ll be willing to donate a little, and every little bit adds up. You could even host a dinner or lunch at your house for a set price and invite your friends and family.
Investors
Depending on your situation, you may know people who are willing to invest in your food truck business. Investors may put money into the business, and then expect their money to return to them (hopefully with interest) eventually. This could be through a repayment schedule or by paying out a percentage of profits.
Before asking, or accepting money from an investor be sure that you are capable of repaying the amount within the specified time frame. Also ask yourself if accpeting money from that person would put uncomfortable strain on your relationship. Friends and family want to help you succeed, but make sure the arrangement is something that you are both comfortable with.
Business loan
With business loans, you will acquire the allotted funds and need to pay it back within a certain time frame and with interest, but a business loan may be more difficult to get for a startup business. Most lenders for business loans only cater to established businesses that have been operating for over two years.
If you have an existing food business you could be able to apply for a business loan under that business and have your food truck be an extension of that existing business. For example, if you own a bakery you can open a food cart that sells your baked goods at local events.
If you already own one food truck and are looking to open more, you’ll have an established business and you may be able to get business loans or a line of credit to help fund the next food truck.
Business grant
A business grant is a great option for funding a food truck, because you usually don’t need to pay it back – but – they can be extremely difficult to get. Grants are often given out by the federal or local governments to help small businesses open to help the community thrive.
Obtaining a business grant will usually take time. Often, you’ll need to submit a thorough business plan and include market research to show that you understand your target demographic. Similar to how scholarships work for students, there is a limited amount of grant money at a given time, and applicants will have to be chosen out of a large pool. The funds will be given to the person or party who has the strongest business plan (in terms of the businesses success likelihood- they don’t want to give funds to a business destined to fail) and to whoever could make the best use of the funds.
You may find more luck obtaining a small business grant if you are part of a minority group as some funding is set aside specifically for underserved demographics.
The bottom line:
Starting a food truck is extremely expensive, making it difficult to obtain enough funding. The strategies outlined above are the seven most common strategies people use to pay for a food truck. You may find success by employing a variety of these strategies in order to get enough funding for your food truck business.
Before you start searching for funding, conduct research to learn how much the food truck business you are envisioning will cost. Here are more tips to help you start your food truck business on the right foot.
