Dive Brief:
- 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 Parafin, a financial technology firm. Operators can check their advance amounts in their Merchant Portal's "financing" tab. DoorDash partners that accept the advance will receive the funds in a few business days, and accepting the money will not impact their credit scores.
- Recipients pay a one-time fee that is paid throughout the duration of the advance, and repayment is based on a percentage of their DoorDash sales. DoorDash will not charge interest on the advances, which could benefit restaurants struggling in the absence of federal relief.
Dive Insight:
Access to capital is a challenge for the restaurant industry, particularly for smaller establishments, as many fail to qualify for financing from major banks. Just 35% of businesses with revenue between $100,000 and $1,000,000 have received bank funding in the past five years, according to Federal Reserve data.
With sales fluctuating due to COVID-19 variants, many independent restaurateurs have taken out personal loans or sold assets just to stay afloat. Forty-one percent of restaurant operators who did not receive Restaurant Revitalization Fund grants have taken on personal loans to support their businesses, and 28% may face eviction, according to the Independent Restaurant Coalition.
DoorDash Capital could provide an alternative lifeline for restaurants with limited access to traditional credit. DoorDash is the first delivery provider to jump into this sort of financing as the company diversifies its operations and grows into new verticals. Providing interest-fee cash advances could attract more restaurants to the DoorDash platform and grow DoorDash's already dominant market share. Over 1,000 DoorDash partners tested the channel during its pilot phase, and DoorDash said it received largely positive feedback.
The new service is part of a growing category of alternative financing options available to businesses. Payment firms like PayPal and Square also offer loans to small businesses. 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 not allocated any additional funding for the RRF. Throughout the pandemic, DoorDash has offered restaurants aid to bridge gaps in federal support. In November, for example, the company established a Disaster Relief Fund that provides $10,00 relief grants to restaurants impacted by natural disasters. In 2020, DoorDash granted millions of dollars to small restaurants in a handful of major markets.
