DoorDash will start lending money to restaurants

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Some restaurants will soon be able to get financing from DoorDash.

The third-party delivery company on Wednesday unveiled a new program called DoorDash Capital that will offer cash advances to eligible restaurants. Restaurants can use the money to buy equipment, pay rent or cover other costs like hiring and marketing, DoorDash said.

Restaurants will repay the advance through deductions from their DoorDash revenue. The financing does not bear interest, although there is a one-time fee of up to 10% of the financing amount. These fees are also paid in instalments. Restaurants will have access to the funds within a day or two of accepting the offer.

The program comes as many independent restaurants continue to struggle to generate cash flow. A survey last month by the Independent Restaurant Coalition found that 42% of independents who had not received aid from the Restaurant Revitalization Fund were at risk of declaring bankruptcy or had already done so.

DoorDash said the financing program is designed to alleviate this problem for small businesses, which often struggle to qualify for regular bank loans.

The company is working with technology company Parafin to administer the program. According to Parafin’s website, it provides the capital and assumes the risk for the companies it works with.

Here’s how DoorDash Capital will work:

  • Eligible restaurants will see a pre-approved advance amount on their merchant portal. The amount is based on restaurant revenue.
  • If they accept the offer, the funds will appear in their bank account within one or two business days.
  • The refund is automatically deducted as a percentage of the restaurant’s daily DoorDash sales.
  • Once restaurants have paid the full balance, they may be eligible for more capital.

DoorDash estimated the restaurants would be able to repay the advance “within one year.”

The program has been tested with more than 1,000 restaurants and earned a Net Promoter Score of 80, DoorDash said. The Net Promoter Score is a widely used metric that measures the likelihood of a customer recommending a product.

The offer is unique among U.S. delivery companies and gives DoorDash another edge in attracting restaurants as it continues to compete for supremacy in the U.S. delivery market.

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Troy M. Hoffman