When it comes to starting or even expanding an ice cream truck business, you are likely going to need a business loan to be able to achieve it.
A loan is a monetary product that gives the applicant the opportunity to access a certain amount of money as agreed by both parties (the applicant and the financial institution issuing the loan).
The agreements that are met before a loan can be issued are the payment plan, the interest, and the implications for defaulting in paying back. Actually, a business loan is a loan that is issued strictly for the purpose of starting and running a business.
Whatever the challenges you are facing when it comes to raising money for your ice cream truck business, you will overcome such challenges by approaching loan-issuing institutions in and around your locality and that is what this article is all about.
Steps to Get a Business Loan to Start an Ice Cream Truck Business
Step One: Have a Clear Idea of How Much You Need
The first step you are expected to take is to come up with a clear-cut idea of how much you need for the business. The truth is that you cannot walk up to a bank and tell them that you need a business loan without having in mind how much you need.
Usually, you are expected to have part of the money you need and then source the rest as a business loan. You do not expect a loan issuing institution to just open their vault and give you all the monies you need; there must be some financial commitment from your end.
Step Two: Write a Business Plan
The essence of a good business plan cannot be over-emphasized. As a matter of fact, no business loan-issuing institution will issue a business loan to anyone without a business plan. Your business plan is part of what will be assessed before you can access a business loan from a financial institution.
The business plan will give a clear picture of why you need the loan, the viability of the ice cream truck business, and of course, the capacity to repay the loan.
Step Three: Check Your Credit Score
Another thing you need to do if you want to apply for a business loan is to check your credit score. If it happens you have a bad credit score, you can hardly get any loan-issuing institution that will grant you a loan.
Note that credit score ranges vary, and this is influenced by the credit scoring model used. But generally, any credit score from 580 to 669 is regarded as fair; 670 to 739 are regarded as good; 740 to 799 are regarded as very good; and 800 and up are regarded as excellent.
Step Four: Gather Your Collateral
The next step you should follow is to gather your collateral. Different financial institutions have different requirements as regards collateral, but it will be to your advantage to be prepared ahead of time before approaching the financial institution for a business loan.
Your collateral is anything you can present before you can secure a loan, things that will guarantee that you are going to pay back the loan, and if you default, the financial institution has the right to seize it.
So, part of what you should prepare as collateral includes your equipment, inventory, invoices, and real estate (properties) if you have any. You should get all the documents ready because you will need them.
Step Five: Make a List of The Financial Institutions to Approach
Trust me, not all financial institutions give out business loans to start-up ice cream truck businesses. Some financial institutions are skeptical of the ability of start-up ice cream truck businesses to repay their loans hence they are usually averse to giving them loans.
This is why you should make sure you research all the financial institutions around you to know what their requirements are.
Once you are done with your research, you should come up with a list of the possible financial institutions you will approach for a business loan. You may want to list them based on the possibility of securing a business loan from them.
Step Six: Visit the Financial Institutions and Talk About Your Business Loan Request
This step is very important and you need to be well-prepared. You are not expected to go with your applications at this stage as each financial institution has its expectations when it comes to business loans.
All you are expected to achieve from this stage is to get an idea of the possibility of securing a business loan from them and also to know what you should include in your application.
Step Seven: Send in Your Applications
The last stage in your quest to get a business loan for your ice cream truck business is to write and send in your applications.
Even though there are no serious technicalities when it comes to the format of writing a business application, the major thing you need to do at this stage is to make sure you include all the documents that will guarantee that your business loan application will be considered.
Please note that there is no limitation on the number of business loan applications you can send per time. As a matter of fact, it is to your advantage to send as many applications as possible so as to increase the possibility of getting the business loan on time.
Interestingly, if you are able to secure a business loan from one financial institution, you can turn down others even if they approve your business loan application.
Sources of Ice Cream Truck Loans and Their Requirements
Here are some of the sources for business loans for an ice cream truck business and the expected requirements.
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Family Members and Friends
One of the easiest sources you can consider when sourcing a business loan for your ice cream truck business is from your family members and friends.
Interestingly, if you are planning to start a small-scale ice cream truck business, this might just be your best pick. This is so because there is a limit to the amount you can get as a loan from your family members and friends.
But the truth remains that there are family members and friends who can go all out to provide the soft loan that can help you start your ice cream truck business.
Requirements:
- Good standing with your family members and friends
- A clear plan to start and run the business
- Clear plan on how to pay the loan back
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Banks (Financial Institutions)
One of the major sources people go to when they need a loan is their bank. So, if you need a business loan for your ice cream truck business, then you should consider visiting your bank.
It might be difficult for a startup entrepreneur to access a business loan from a bank, but the truth remains that it is possible if you meet their requirements.
Interestingly, if you have plans to start a well-structured ice cream truck business, then approaching the bank should be one of your best options. The bank has the capacity to issue you a business loan no matter how much you need.
Requirements:
Please note that each bank has its own loan requirements, but the basic requirements are:
- You must own an account with the bank (preferably a business account)
- Score a good credit score (from 640 to 700)
- Bank statements.
- Meet their collateral requirements
- Business licenses and permits.
- Personal and business tax returns.
- Employee Identification Number (EIN)
- Disclosure of other debt
- Copy of your commercial lease.
- Submit a business plan
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Small Business Administration (SBA) Loans
The SBA loan program is a government-backed financing that is open to entrepreneurs who want to start small businesses.
The SBA issues what are known as microloans for businesses that may require small financing to kick-start their business. Small Business Administration (SBA) loans help reduce the risk that lenders and borrowers are exposed to when looking for business loans.
Despite the fact that the Small Business Administration (SBA) does not technically loan money to borrowers, they usually help connect borrowers to lenders that meet their very stringent guiding principle.
The most popular SBA loan option is the SBA 7(a) loan. The SBA 7(a) loan is an all-purpose business loan that an entrepreneur can leverage to cover all the major expenses in their ice cream truck business. Another type of SBA loan that an ice cream truck business can apply for is the SBA 504/CDC loan.
The SBA/CDC business loan is a specific loan that is designed for ice cream truck businesses that promise to contribute a specific amount to the growth of the community their business is domiciled.
Requirements:
- A minimum credit score of 640
- A good business plan document
- Generate less than $7.5 million in revenue annually
- Have less than 500 employees
- Net income of less than $5 million after tax
- Tangible net worth of less than $15 million
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Alternative Financial Institutions
Lastly, one of the sure sources you should consider when sourcing business loans for your ice cream truck business is alternative financial institutions. Alternative financial institutions are non-bank financial institutions that also give out business loans.
Some alternative financial institutions are also known as loan sharks or loan apps et al. Most alternative financial institutions usually offer merchant cash advances, invoice financing, and short-term loans.
The truth is that most people turn to these alternative financial institutions because it is easier to secure business loans from them than the conventional banks. Although their interest rate might be crazy and their method of collecting back their loans might be crude.
Requirements:
Please note that each alternative financial institution has its own loan requirements, but the basic requirements are:
- Fair credit score (some may even approve a business loan for someone with a bad credit score)
- Meet their collateral requirements
- Business licenses and permits.
- Personal and business tax returns.
- Employee Identification Number (EIN)
- Disclosure of other debt
- Copy of your commercial lease.
- Submit a business plan
In conclusion,
It is advisable to review your ability to pay back any loan you want to collect before approaching any institution for a loan. This is necessary because if you fail to pay back the loan, it will not only affect your credit ratings and your ability to secure loans in the future, but it will also affect your capacity to grow the business to profitability.