DoorDash is partnering with fintech company Parafin to launch DoorDash Capital, which will provide restaurants with convenient access to capital. The company leverages its visibility and control over restaurant delivery revenue to offer cash advances on future business on the DoorDash platform.
Eligibility for the service depends on an opaque measure of the size and stability of a restaurant’s business on DoorDash. The size of their lead is set in the same way. “Each merchant is approved up to a specific amount for each cash advance based on their sustained sales on our platform,” said DoorDash chief revenue officer Tom Pickett.
Operators can check their eligibility in the merchant portal. If there is an offer, they can accept up to that amount and receive the money in as little as one to two business days.
Reimbursement is performance-based. DoorDash will automatically deduct a portion of a restaurant’s sales made on the platform. Merchants can customize repayment terms, including advanced amount, repayment term, and repayment percentage.
DoorDash Capital charges a one-time fee to access capital, apply capital, and repay during the advance. DoorDash Capital does not charge interest, according to the company’s website.
Set by Parafin, the fee “is generally less than 11% of the bid amount, although the rate depends on each trader’s qualification,” Pickett said. An example on the company’s website shows an 18% fee.
More than 1,000 merchants participated in DoorDash Capital’s pilot program, according to a blog post. A company spokesperson said these merchants used the funds “for many business-related expenses, including payroll, marketing, purchasing equipment, opening or expanding to new locations and more”.
“Small business restaurants have always had difficulty obtaining loans and often do not know where to turn for quick and fair financial support, as traditional banks have long application processes and often impose strict requirements in credit and business history to get a loan,” Picket said. The company cited Federal Reserve Bank research showing that only 35% of small businesses (income between $100,000 and $1,000,000) received bank financing in the past five years.
While convenient access to capital is a good thing, DoorDash Capital is likely designed to complement the larger operations of the business. On the one hand, more successful partners mean more delivery activity. And by tying capital to business conducted on the DoorDash platform, it incentivizes restaurants to prioritize DoorDash business over other third-party providers, such as Uber Eats and Grubhub.
DoorDash Capital is only available in the United States and the company has no plans to expand the service, Pickett said. “We are working to provide these partners with the best possible experience at this time,” he said.