Tags Posts tagged with "Financing"

Financing

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San Jose Food Truck Microloan
(Marcio Jose Sanchez/(AP Photo)

SAN JOSE, CA — A daycare provider needed cribs and high chairs. A coffee truck needed a generator. A couple renting party supplies needed to move from a garage into a storefront.

When these Silicon Valley small businesses needed an influx of cash, and fast, they didn’t find help at a bank. They turned instead to a type of financing more commonly associated with buying a sewing machine for a Guatemalan tailor or a tractor for an African farmer.

Microlending, a decades old form of financing for the world’s poorest, is now booming in Silicon Valley. The region leads the country for microlending as a growing echelon of would-be businesspersons who can’t qualify for traditional bank loans meets money from cash-rich techies and firms, including eBay and Microsoft, who want to donate in innovative ways.

“Our clients are entrepreneurial people, but the mainstream financial system doesn’t work for them,” said Eric Weaver, founder and CEO of the San Jose, Calif.,-based Opportunity Fund, which invested a record $7.6 million in loans to small businesses last year, creating about 1,900 jobs.

Beneficiaries range from dry cleaners to barbeque joints, and the lender is now believed to be the largest financer of food trucks in the state. “A food truck or a hot dog cart is a U.S. equivalent of a cow in a developing country,” he said. “It’s something a family can support itself with.”

Paul Cruce tried banks, and even the high tech crowdsourcing route to get his Holy Cow Coffee Company to join the “upscale food truck brigade” before turning to Opportunity Fund.

Today, with a new generator powering the refrigerator, espresso machine, coffee brewer and crepe griddle, the Holy Cow truck is a popular attraction at farmer’s markets.

“I borrowed from Opportunity Fund rather than a bank because they are more in tune with the needs of small business and have more favorable credit terms,” said Cruce.

Microlending was devised by Bangladeshi banker Mohammad Yunus, who won a 2006 Nobel Peace Prize for developing the financial instrument that supports would-be business owners too poor to qualify for traditional bank loans.

Today, the global microfinance industry has more than 200 million clients with $73 billion in outstanding loans, according to the London-based Centre for the Study of Financial Innovation. Just a small fraction of those—about $165 million—are in the United States, where about 400 institutions offer microloans.

Those firms typically give about 45 loans a year, compared with a record 1,200 from Opportunity Fund last year. The program, which is nonprofit and sustained by donations, has extended to Los Angeles in recent years. And this summer, Opportunity Fund teamed with Pacific Coast Ventures to target loans to Santa Cruz and Monterey counties.

Because microlenders work closely with recipients, providing financial education and business support, the microloans in the San Francisco Bay area have a delinquency rate of under 1 percent, compared with loss rates of about 5 percent for more typical loans. Rates range from about 8 to 12 percent, well below the 30 percent credit card rates many entrepreneurs use to try to launch businesses.

Despite a booming tech industry, the region faces growing inequality, stagnant job growth, soaring housing and transportation costs and widespread low wages. Small business owners who are largely immigrants point to their microloans, usually around $15,000, as a turning point for “making it.”

Argentinian chef Manuel Godino had no credit but lots of demand for his empanadas, which he cooked in an industrial kitchen and sold to cafes and restaurants. A microloan helped him launch his own storefront Venga Empanadas in San Francisco’s Mission District, where he employs another eight people.

Confectioner Cristina Arantes tapped Opportunity Fund to support her Kika’s Treats, making chocolate shortbreads and caramels. Tina Ferguson-Riffe turned her $20,000 loan into a barbeque joint, Smoke Berkeley, where she employs seven others.

Yale University economics professor Dale Karlan said domestic microlenders should strive for self-sustenance, rather than depending on charitable dollars.

“Overseas, they figured out how to make this work, and for-profits stepped in,” he said. “If they have to lose money to make these loans, then this is a subsidy, not a loan, and then we have to think about the most important things to subsidize, which might not be a small business.”

John Kohler, director of Impact Capital at Santa Clara University’s Center for Science, Technology, and Society, said microloans can be a crucial source of funding for the 20 to 30 million people in the U.S. who have no checking accounts or credit.

And although microlenders like Opportunity Fund operate as non-profits, philanthropists like the model because their money goes further, recycling loans as they are repaid.

“We are not going to have enough dollars to donate our way out of the grip of poverty that exists in this country,” he said. “Large corporations know this, and are increasingly preferring evergreen programs that loan the same dollars again and again instead of just handing over charitable capital.”

Sid Espinosa, director of Corporate Citizenship for Microsoft Corp. in the Silicon Valley, said they chose to give to Opportunity Fund because it solves a problem for people seeking to launch a business and meets their strict requirements about who they give to, including providing relief to the poor.

“It’s that extra kick they need at this point in their lives,” he said. “And they can turn that loan into a business, into savings to raise a family, into an education.”

By Martha Mendoza, Associated Press

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food truck for sale
Image from usedvending.com

With the mobile food industry continuing to grow we are constantly on the look out to assist both the owner operators as well as the customers of these rolling bistros. From time to time we run polls to gain industry information that truck owners can use to help better their customer service and the options that they provide to the communities that they serve. Other times our polls are set to find out general information “we” want to know.

In this poll we are interested to find out how food truck owners have purchased the platform for their mobile food business (truck, cart, trailer, bike etc…). There are so many options out there and each owner or ownership group rarely use only one source of income.

Please Note: This poll allows you to vote for multiple choices if you used multiple avenues to purchase your food truck.

How Did You Finance Your Food Truck?

View Results

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If you acquired your truck through an alternated funding platform, please let us know in the comment section below.

Let us know how you purchased your food truck, so we can share the findings with our readers.

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Only one third of small business owners (including prospective food truck owners) were able to obtain all of the credit that their businesses need, a recent National Federation of Independent Business (NFIB) survey shows.

difficulty getting loans

The survey’s finding is not surprising. Many economists, policy makers and food truck advocacy groups have long explained that mobile food vendors have a harder time obtaining credit than restaurants (their larger counterparts). When it comes to accessing capital, size definitely matters.

Even among food truck businesses, the smaller the company, the lower the odds that it has a loan or a line of credit. Only 15.7 percent of businesses with one or fewer employees have a business loan and only 33.7 percent have a line of credit, the NFIB survey shows. By contrast, 56.8 percent of businesses with between 50 and 250 workers have a business loan and 65.4 percent has a line of credit.

Rather than reveal some sinister motives among bankers, however, these patterns simply reflect the economics of business credit. Fewer small businesses have access to credit than larger companies because lending to them is riskier and more expensive than extending credit to larger companies.

Default risk is higher in the mobile food business loan market. Small businesses fail at higher rates than big businesses and changes in the business cycle have a larger impact on their profits. Because lenders cannot always charge interest rates that are commensurate with a borrower’s default risk, the most risky small business borrowers are often unable to get credit.

Lending to a food truck business is more expensive than lending to big companies. Part of the problem is the fixed cost of making a loan. Some costs are the same whether you make a $50,000 loan or a $5 million loan. Therefore, profit margins are higher on bigger loans. Of course, larger companies are more likely to need bigger loans than their smaller counterparts, which leads lenders to focus on larger customers.

Additionally, evaluating food truck business loan applications is often expensive. Little publicly available information on the financial condition of food trucks exists, and these mobile business owners rarely have financial statements that are very detailed. Food truck owners’ personal finances are sometimes intermingled with those of their businesses. The very large variety of small businesses and the way they use borrowed funds make it tough to apply general lending standards. Finally, monitoring the financial condition of mobile food businesses often requires lenders to build personal relationships with the food truck owners.

These economic principles have important implications for those seeking to boost small businesses’ access to credit. Encouraging more lending will require policies that take into account the greater cost and risk of lending to food trucks — and why these mobile food small businesses have trouble getting credit.

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food truck crowdfunding

Once an unknown financing option for entrepreneurs, crowdfunding has quickly evolved into a fast, effective way to raise cash for just about any mobile food industry project. Crowdfunding’s growing popularity is good news for creative culinary types who typically don’t have access to large bank loans or angel investments.

From initial start costs to fleet expansion to new equipment purchases, crowdfunding can cover the whole gamut of various projects food truck vendors need assistance in financing. The great thing is that this funding is likely to keep soaring, as the crowdfunding economy grows from $1.5 billion in 2011 to an estimated $3 billion this year.

Four Things to Do Before Launching Your Campaign

If you want people to give, you’ve got to drum up excitement. Here are four strategies for building momentum even before launching your food truck campaign:

Build your social network. Fundraising season is not the time to be a wallflower. Plan to let anyone who has ever supported your creative endeavors know you’re looking for backers. Don’t have much of a network in the first place? Then build one.

Make a great video. Thanks to the built-in video recording features on smartphones, a good video doesn’t have to cost a dime.

Plan perks people want. If you’re raising money for a food truck or other mobile food business, it makes sense to plan on sending coupons for free food or merchandise as thank yous.

Create multiple entry points. Not everyone has $50 to spare, no matter how great your food truck project sounds. So make sure to have lower pledge levels (starting as low as a dollar) to encourage people to participate in and create momentum for your campaign. Likewise, come up with a few over-the-top perks to reward your biggest backers.

How to Pick the Right Crowdfunding Site

The crowdfunding site Kickstarter has gotten so much publicity lately that you might think it’s your only option. But there are literally hundreds of other sites from which to choose. Here are some of the best, along with their key differentiators:

Kickstarter: With more than $350 million raised for projects since 2009, Kickstarter is the best-known crowdfunding platform, but it also takes the largest cut: a 5% flat fee, plus 3% to 5% for payment processing via Amazon. That means you typically pocket just 90% of pledges. And Kickstarter’s rules dictate that if you don’t reach your goal—even if you raise $9,500 out of the $10,000 you’re seeking—you get nothing. Despite these issues, Kickstarter has a reputation for helping people raise more money than any other site.

Indiegogo: The main reason people choose Indiegogo is that, unlike Kickstarter, it lets you keep all the cash you raise even if you don’t meet your goal. Such largesse doesn’t come free: Indiegogo keeps 9% of funds raised under this “flexible” funding plan, plus a 2% to 3% payment-processing fee. Otherwise you pay a 4% flat fee for Kickstarter-style “fixed funding,” plus the 2% to 3% fee. Indiegogo isn’t just some lame also ran, either. And unlike Kickstarter, Indiegogo allows charity and cause-oriented projects.

Others: Crowdsourcing.org keeps an updated directory of hundreds of crowdfunding sites, if you want to search on your own.

Get Real About Your Overall Costs

The biggest mistake novice crowdfunders make isn’t asking for too much money; it’s not making a realistic estimate of how much money they will need to cover their expenses.

Say, for example, that you know it will cost $15,000 to purchase your truck. Subtract fees (of about 10%, including payment processing), the cost of shipping out gifts to your backers, and taxes, and you might net only half of your total funds raised. In other words, you should ask for at least a third more than the total amount you think your food truck project will cost.

Many crowdfunders don’t realize until after their campaign is over that they underestimated their costs.

If you feel uncomfortable asking for the full amount up front, once you reach a lower goal, you can announce a stretch goal and send updates to your backers explaining how you’d use any extra funding.

How to Drive Thru the Mid-Campaign Deadzone

It happens to even the most successful food truck campaigns: After a swift start and a flurry of pledges from your inner circle of friends and family, donations start tapering off in the second or third week.

Here’s how to turn things around:

Don’t let your food truck campaign drag on too long. A month is the typical sweet spot for most crowdfunding campaigns. Any longer and people will put it on the back burner, then forget to donate. Any shorter and your project can seem rushed and disorganized. It’s also best to end your campaign on a weekday evening so you can give the final push when people are probably bored at home and surfing the web anyway.

Stagger your updates. Assume that donations will taper off in the second week of your campaign—and be ready to re-energize it by sending out an update on funds raised or newly added prizes.

Maintain separate email lists. You may want your first email at the start of the campaign to go only to close friends and family, the second to professional colleagues, and the third to everyone else. Casual acquaintances are more likely to be motivated by seeing that the campaign already looks like a winner. And be careful not to annoy people who already funded you with numerous follow-on solicitations.

Don’t freak out.  The mid-campaign slump is normal, not an early indicator that your project is doomed. Avoid the urge to add perks you can’t really afford or to start emailing people on a daily basis.

How to Satisfy Your Funders

Nobody likes dealing with a flake, especially when that flake has your money. So if you ever hope to get your funders behind another project, you need to assure them that you’re on the ball, making progress, and will have something to show for their faith.

Finish early. Looking for a great way to make your backers really happy? Beat expectations.

Communicate. It’s not always possible to finish early, of course. If you’re running late, like three-quarters of all crowdfunding campaigns, let your backers know.

 

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tip of the day

According to complaints filed with the Better Business Bureau, victims across the country have lost a total estimated quarter million dollars to advance fee loan scams recently. Advance fee loan scams target individuals and small business owners who are desperate to get a loan and often take the victim for thousands of dollars.

Despite recent improvements, the economy continues to provide a great opportunity for scammers to take advantage of struggling individuals and small business owners. Lending standards remain stringent at most banks and many cash-strapped individuals are turning to fraudulent lenders that promise loans regardless of your credit history.

“Schemes preying on people looking for loans are not new, and they are flourishing in an economy when so many are struggling to get by,” said Stephen A. Cox, President and CEO of the Council of Better Business Bureaus. “The complaints received by BBB are only the vocal few and we know from experience that many more people across the country are falling for this scam every day—just when they can least afford it.”

BBB has recently received complaints about advance fee loan scammers operating under more than 75 different names including Capital Alliance Financial Group, Harford Financial Services, Howard and Clark Financial, Lending Hand Financial, among others.

Most people stumble upon the scam online or learn about the bogus loan offer from ads in local Thrifty Nickel publications and online through classified sites like Craigslist. Often, an advance fee loan scam website will be created and taken down within a couple weeks only to be replaced by another operating under a different name and fake business address.

The websites look professional and might even put the victim through the rigors of filling out loan application forms—often requiring the victim’s bank account and Social Security numbers. Eventually victims are told they are approved for the loan and just need to pay as much as thousands of dollars upfront via money order or wire transfer to pay for insurance or collateral. Those that pay, never get the promised loan and are even sometimes tricked into giving the scammers even more money.

BBB advises cash-strapped individuals and small business owners to recognize the red flags of an advance fee loan scam:

  • The lender has a bad reputation—or none at all.  Research the lender thoroughly online and with your BBB. Most trustworthy lenders have an established track record; be wary if you can’t find much information about the lender online.
  • The lender is not registered in your state to do business. Check with your state financial or banking regulators.
  • The lender asks you to wire money or send a money order—such as for insurance or collateral—before you can receive the loan. You might be told to wire money to another country, consider this yet another red flag.

If you’ve become a victim of an advance fee loan scam, contact your local Better Business Bureau and report the incident to your police department.

 

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food truck loan

Although food trucks are popping up across the country, some hopeful owners are still struggling to get financing, and this has many culinary entrepreneurs wondering how to go about getting the cash they need to either start or maintain their business.

These days you’re more likely to win at roulette than to secure a business loan. Nearly two-thirds of privately held businesses said they were denied by banks when they applied for a loan, according to a recent Pepperdine University survey. So many hopeful food truck owners have to get creative when it comes to raising money. Here are a few tips:

Bank Loans

Before you fill out that bank loan application, do some homework. If you are planning to use a bank loan to get your food truck operation started, run a credit check and talk to local bankers about the criteria needed to get a loan.

Then, make sure you have a solid business plan that includes details such as a competitive analysis, the management process, a marketing analysis and financial projections.

Also be aware that you will be expected to lay out more of your own cash up front. Banks used to settle for anywhere from 10 percent to 20 percent in cash or assets put up by those seeking a loan. Now they are looking for closer to a 50-50 split, the more money that comes out of your pocket the better.

Micro Loans

If you are looking for a loan under $50,000, a microloan may be the way to go.

The Small Business Administration’s Microloan Program provides small, short-term loans through specially designated intermediary lenders, which are usually nonprofit community-based organizations.

While the maximum amount is $50,000, the typical loan is for $13,000. The requirements to obtain a microloan are more lenient as far as your credit score goes, plus, many big banks are generally hesitant to approve loans for under $50,000.

Crowd Funding

Instead of heading to your rich uncle, look into the relatively new phenomenon of “crowd funding”. This type of loan is where you get small chunks of funding from everyone in a group such as Kickstarter.

This route has a lot lower risk for those involved. The other upside is you will have a lot of people with interest in your prospective food truck and they may be more likely to give you referrals and opportunities down the road.

What Not to Do

The “don’ts” can be just as important as the “dos” when it comes to financing your food truck business. Here are three pieces of advice on the subject.

First, don’t invest all your time in trying to raise money. There have been so many good business concepts that go sour because the person has committed everything to raising money and puts the concept on hold.

Second, ideas are great but execution is everything. Don’t pursue financing if you don’t have a working concept.

Lastly, don’t get hung up on the interest rate. If someone is offering you $50,000 at 12 percent and someone else is offering you $30,000 at 8 percent, the loan with the higher interest rate may be the way to go if that is the capital you need.

 

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