WEST TOWN — The owner of a new Chicago Avenue cafe has turned to the community to crowd-source a $25,000, three-year loan to pay for an oven, improve a back patio and build a garden.
So instead of applying for a small business loan or a line of credit, Wright has turned to LendSquare, a start-up company that asks community members to fund small businesses owners with loans that are paid back with interest.
Wright said if he went through a bank, he would be paying 15 or 20 percent interest on a line of credit, whereas the interest rates he has worked out with individual lenders through LendSquare have ranged between 3 and 8 percent.
For lenders, the advantage is that their money stays in the community and goes to a business they frequent, while also offering better returns than a bank savings account or certificate of deposit. Wright has also pledged to give perks to lenders such as free lattes and specialty beverages.
Wright said he planned to use the loan to buy a convection oven for the cafe's kitchen as well as transform "a pile of dirt" into a garden for herbs, tomatoes and avocados. He also plans to build a 30-foot-long bench with tables using reclaimed wood, plus provide shade, outdoor lighting and install a wireless sound system for music.
As of Wednesday, Wright's campaign to obtain a $25,000 loan had received $5,640 in pledges, or 22 percent of its goal. In order for the pledges to turn into an actual loan, supporters would need to pledge $20,000 or 80 percent of the requested loan before the campaign ends in 10 days.
LendSquare has a 20 percent margin of error to fulfill the loan in the event "if during funding someone backs out," said Jose Valdes, a co-founder of LendSquare, which is based in Chicago.
When asked about what would happen if he were not able to pay back the loan, Wright said that "even in a worst-case scenario" if he closed his doors, for instance, those who lent him money would have first rights on his assets.
As an additional safeguard, LendSquare also hires a collection agency on behalf of the lenders if a loan is not paid back, but cautions prospective lenders on its website that "there is no guarantee that collections will be successful."
The recent "Kickstarter fail" by a Wicker Park artist who decided to burn rather than ship books out to his backers has given crowd-sourcing a bad name, Wright said.
"A fool and their money are soon parted. I would never give money to an artist if I didn't feel he knew how to run a business, but I would give money to an artist's manager," Wright said.
Wright said LendSquare was "like the Kickstarter for business owners" and decided to launch his loan campaign after reading about Bow Truss Coffee, which used the micro-loan start-up to raise $200,000 to open a new location.
In addition to Ugly Mug Cafe, Wright has helped own or operate other local businesses.
Wright moved to Wicker Park in 1997 from Seattle, and, with his ex-wife, Laura Yepez, bought Alliance bakery at 1736 W. Division St. in 2003, which they later sold.
In 2004, the couple bought another existing business, the Wicker Park Inn, a bed and breakfast that Yepez continues to operate.