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Toast has launched Toast Capital so its customers can secure loans, with restaurant-specific quirks in mind, like “seasonality and restaurant profit margins,” according to Tim Barash, chief financial officer at Toast. Toast will offer loans between $5,000 to $250,000 to restaurants that already work within the Toast network.
When a new patio costs around $150,000, or a new walk-in refrigerator can cost up to $10,000, potentially setting a business back, a loan in that range can help a small business with growing pains (or unexpected new changes).
“Right now, the typical process restaurants follow in order to secure funding is to spend weeks or months applying for a loan through their bank, only to later find out they haven’t been approved,” Barash told Crunchbase News. “Many end up going to loan sharks or put massive amounts of money on their credit cards.”
Toast claims its only competition is the status quo: traditional bank loans or credit cards, mixed in with compounding interest or annual and late fees.
To start, Toast Capital does not give loans to restaurants outside their customer base. So within its Toast network, the company claims it gives fast and flexible loans, which I’d imagine is good for a business with good and bad days.
I asked Toast’s Barash to walk me through an example.
First, flexible: he told me that if a restaurant brings in, say, $5,000 on a Monday, but on Tuesday it brings in $10,000, the restaurant “will pay less on the day they made less.” So it’s a model where you pay a percentage of what you make each day.
Now onto fast: Toast says that eligible customers – those on the Toast point-of-sale platform for at least six months – can apply for a loan in a few minutes, and then receive funds in one business day.
Let’s say a coffee shop in Boston has a bad month because of a few snow storms. According to Toast, the loan would account for lower-than-normal numbers with a percentage-based payback.
A Bigger Slice
Coming off a $250 million venture capital raise in April, Toast is one of Boston’s most valuable tech unicorns. Investors include TCV, Tiger Global Management, Bessemer Venture Partners, and Lead Edge Capital Fund.
A San Francisco-based competitor of sorts, Brex, comes to mind. The startup also claims fast and flexible funding for volatile companies, startups. Brex most recently raised $100 million in a round led by Kleiner Perkins Digital Growth Fund. Existing investors also joined in, including Y Combinator Continuity, GreenOaks Capital, Ribbit Capital, DST Global, and IVP. Its total known funding to date is $315 million.
Brex, which offers a credit card and now cash for startups, is valued around $2.6 billion, a number it achieved in less than two years. Founded in 2011, Toast is currently valued just a bit above that number, at $2.7 billion.
At first, Brex and Toast Capital could be competitors of sorts. Both businesses offer fast loans to companies often ignored by traditional systems. The difference lies in the nuance. Brex offers credit, while Toast Capital offers a loan, which while flexible, has a flat fee by ways of a factor rate (more here).
The bottom line: We’re in a period where startups aren’t afraid to take on traditional banks, Toast’s jump out of simply software is thus well-timed, and while in some ways surprising, not as risky as it was in the past.
Illustration: Li-Anne Dias