- DoorDash on Wednesday launched a new service, called DoorDash Capital, which provides cash advances to partner restaurants and other small businesses. Restaurants can use this money to pay for business expenses, including payroll, equipment purchases, rent, hiring, and marketing.
- Eligible restaurant partners will soon be pre-approved for revenue-based advances facilitated by Paraffin, a fintech company. Operators can consult the amount of their advances in the “financing” tab of their Merchant Portal. DoorDash partners who accept the advance will receive the funds within a few business days, and accepting the money will not impact their credit scores.
- Beneficiaries pay a one-time fee that is paid for the full term of the advance, and reimbursement is based on a percentage of their DoorDash Sales. DoorDash will not charge interest on advances, which could benefit struggling restaurants in the absence of federal assistance.
Overview of the dive:
Access to capital is a challenge for the restaurant industry, especially for small establishments, as many fail to qualify for financing from major banks. Correct 35% of companies with incomes between $100,000 and $1,000,000 have received bank financing in the past five years, according to Federal Reserve data.
With fluctuating sales due to the variants of COVID-19, many independent restaurateurs took out personal loans or sold assets just to stay afloat. Forty-one percent of restaurateurs who have not received grants from the Restaurant Revitalization Fund have taken out personal loans to support their business, and 28% are at risk of eviction, according to the Independent Restaurant Coalition.
DoorDash The capital could provide an alternative lifeline to restaurants with limited access to traditional credit. DoorDash is the first delivery provider to venture into this type of financing as the company diversifies its business and expands into new verticals. Offering cash advances on interest could attract more restaurants to the DoorDash platform and grow DoorDash’s already dominant market share. More than 1,000 DoorDash partners tested the chain during its pilot phase, and DoorDash said it received largely positive feedback.
New is part of a growing category of alternative financing options available to businesses. Payment companies like PayPal and Square also offer small business loans. But restaurant industry groups are looking for solutions beyond loans.
The IRC and the National Restaurant Association have called for more federal relief, but Congress has allocated no additional funding for the RRF. Throughout the pandemic, DoorDash has offered restaurants assistance to fill gaps in federal support. In November, for example, the company created a Disaster Relief Fund that provides $10,000 relief grants to restaurants affected by natural disasters. In 2020, DoorDash awarded millions to small restaurants in a handful of major markets.